Friday, March 14, 2014

"How to Win Buffett's $1 Billion Basketball Contest"

From Barron's Ahead of the Crowd:

Think you know college basketball? Predict a perfect March Madness bracket and you could buy a team.
Mathletes, get your game faces on. 

Registration has started for the Billion Dollar Bracket Challenge, offered by Quicken Loans and backed by Warren Buffett's Berkshire Hathaway (ticker: BRKA). Fill out a perfect March Madness bracket, predicting the winner of all 63 games in the NCAA men's college basketball tournament, and Buffett will hand you $1 billion—sort of.

He'll actually hand you either $500 million now or $25 million a year for 40 years, for a total of $1 billion.
The good news on that score is that you can boost your odds of winning from negligible all the way up to infinitesimal simply by ignoring work, family and friends for a few days and diving into the world of bracketology.

In the tournament, 64 teams are "seeded" or ranked in four groups of 16, with the No. 1 team within each group playing against the No. 16, the No. 2 against the No. 15, and so on. The winning teams move to the next round. A monkey's odds of getting every game right would be akin to flipping heads on a coin 63 consecutive times. That works out to about one in nine quintillion. But even a monkey knows not to bet against a top-seeded team in the first round, or even a No. 2 seed. After that it gets more difficult. "Almost every year a 12 beats a 5," says Tim Chartier, a professor or math and computer science at Davidson College and an expert on bracketology.

Chartier has developed a set of predictors that goes beyond regular season win-loss records. The most important is the strength of a team's schedule during the regular season. Between two teams with similar win percentages, favor the one that has played the tougher opponents. Recent wins are more predictive than early-season ones, in the same way momentum stock traders favor shares that are hitting new highs now rather than ones that are up big over the past year but have backed off in recent weeks.

Next, look for teams that have done well on the road. And favor ones that have put together long strings of consecutive wins. When judging teams on average margin of victory, use a cap of, say, 15 points, because coaches often send in second-string players rather than run up the score.

Putting factors like these together, Chartier reckons bracket fans can boost the average odds of predicting each game to about 70%. That improves the chances of winning Buffett's cash to about one in 10 billion. For comparison, there's a one in 258 million chance of hitting the New York Lottery jackpot. But at least Buffett doesn't charge a buck to play. will end its contest registration at 15 million entries or on March 20, whichever comes first. Players can begin filling out their brackets on March 16....MORE