Contrarian Investing and March Madness

Just as in stock market investing, I use a contrarian strategy for NCAA tournament betting pools. It involves making an upset pick I may not even believe is a good pick. Why? Most people pick favorites and higher seeds. If the higher seeds make it to the final 4 and the favorite wins, a lot of people end up being correct, and the winner of the pool is decided from among them by more random factors such as early round games. If a Cinderella team makes it to the final 4, most people turn out to be wrong, and the winner of the pool is one of the few people picking the Cinderella team.

In a year in which the games go as expected, many people end up being correct, and they have a small, mostly random chance of winning the entire pool.

In a year in which a Cinderella emerges, only a few people end up being correct, and they have a high chance of winning the entire pool.

My strategy: pick a Cinderella each year. My bracket will "blow up" most years. But when it doesn't, I win big. If there are 20 people in a winner-takes-all pool, I only need to be correct once every 20 years to come out even. In the last 15 years, I've won two pools, so I'm currently far ahead in terms of lifetime expectations.

Disclosure: My Cinderella pick this year is Boston College to the final 4, along with UNC, Memphis, and Duke.

Share this

I should add that I do have

I should add that I do have one contrarian strategy that does work well. Find the three or four most "trendy" upset picks, and pick the favorite.

My experience is to the

My experience is to the contrary. I usually pick mostly favorites, and I have done very well over the years. It seems like I finish second (in the money) most years. I, like you, am "ahead".

There is really no reason to expect one to do better over the other, really. One multiplies a high probablity (that you will pick a lot of games correctly, mosly big favorites) by a small one (that you will actually do well enough on the random factors to beat out all of your many competitors). The other multiplies a low probability (that your upset picks will actually turn out) by a high one (that if they do, you'll be the champ). Theoretically, I would expect one approach to be equal, in the long run, to the other, if by a different avenue. Empirically (per anecdote), it seems that might be the case.

Alright, now my bracket has

Alright, now my bracket has officially blown up.

Williams and Reddick had horrible games for seniors.

Trent says his second place

Trent says his second place lands him in the money, while Jonathan hypothesized a "winner take all" pool. You are talking about slightly different arrangements and the differences may play a subtle role here. Playing mostly favorites will usually let you do okay, and in a pool where your competition is trying to pick the upsets most of the competitors will blow up. Result: sticking with mostly favorites gets you close to the top.

In "winner take all," close isn't good enough, so roll the dice and pick your upsets. On the other hand, if the pool money is spread out across top finishers, aiming for close becomes a reasonable strategy.

Of course it depends on the size of the pool, cost of entry, and the precise distribution of winnings.

A casual look at the ESPN Tournament Challenge National Bracket suggests that people tend to pick more upsets than historical results can justify. I think most people do try to pick the upsets (and most go down in flames). Jonathan's "contrarian strategy" is not so contrarian, maybe just more extreme than average.

I've posted some thoughts about using markets to aid NCAA bracket picks at www.knowledgeproblem.com/archives/001556.html