I love this story (also see here) because it draws together the key insights of my prediction markets and behavioural finance classes so well. I've probably encountered dozens of people that have referred to "Paul" as if there is something of value in following his predictions - flippant lines such as "we should have heeded Paul the octopus, he was right". The proportion of those people who subsequently revise their strategy to actually place a bet based on Paul's insights, is 0%. It demonstrates the efficiency of markets (i.e. it's inherently arrogant to believe you know the true price of an asset better than the market), and the fact that humans' yearn for narrative. Most chartists are merely following the advice of Paul the octopus - most financial analysts are Paul the octopus.
Now, bearing in mind that there's two teams playing in the final, consider this:
Bookmaker William Hill is so impressed by Paul's predictive powers that it was offering even odds that he will pick the winner of the final on Sunday, between Spain and Holland.
William Hill are "so impressed" they think there's a 50-50 chance he'll be correct?
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