Now that the World Cup is over, there is growing intrigue on the impressive "psychic" abilities of Paul the Octopus. For those that have no clue what I am referring to, Paul happens to be an octopus that lives in a marine life center in Germany that was summoned by its owners to choose the winners for all seven matches in which the German team participated and the very last match of the World Cup in where he was asked to pick the ultimate winner of the World Cup.
Surprisingly, he was able to pick the winner in every single one of the eight events. I say surprising because from a purely probabilistic perspective, the chances of being 100% correct is pretty low.
With 8 events in total, assuming that each event is completely independent from the other, there is a total of 2^8 (2 to the power of 8) or 256 possible sequences of outcomes. The actual probability of getting it right in all 8 events is in fact 0.5^8 (0.5 to the power of 8) which comes to a total probability of 0.39%! That is incredibly low and to assume that it is purely due to chance is difficult to believe.
So...if Paul truly does have a gift, who knows what his psychic abilities could do to the business of forecasting the markets! Hedge fund managers would finally be able to claim with all honesty that their "black box" strategy is truly a black box, even to them.
