## Prediction model for the FIFA World Cup 2014

Like a last minute goal, so to speak, Andreas Groll and Gunther Schauberger of Ludwig-Maximilians-University Munich announced their predictions for the FIFA World Cup 2014 in Brazil – just hours before the opening game.

Andreas Groll, with his successful prediction of the European Championship 2012 already experienced in this field, and Gunther Schauberger did set out to predict the 2014 world cup champion based on statistical modeling techniques and R.

A bit surprisingly, Germany is estimated with highest probability of winning the trophy (28.80%), exceeding Brazil’s probability (the favorite according to most bookmakers) only marginally (27.65%). You can find all estimated probabilities compared to the respective odds from a German bookmaker in the graphic on their homepage (http://www.statistik.lmu.de/~schauberger/research.html), together with the most likely world cup evolution simulated from their model. The evolution also shows the neck-and-neck race between Germany and Brazil: they are predicted to meet each other in the semi-finals, where Germany’s probability of winning the game is a hair’s breadth above 50%. Although there does not exist a detailed technical report on the results yet, you still can get some insight into the model as well as the data used through a preliminary summary pdf on their homepage (http://www.statistik.lmu.de/~schauberger/WMGrollSchauberger.pdf).

Last week, I had the chance to witness a presentation of their preliminary results at the research seminar of the Department of Statistics (a home game for both), where they presented an already solid first predictive model based on the glmmLasso R package. However, continuously refining the model to the last minute, it now did receive its final touch, as they published the predictions at their homepage.

As they pointed out, statistical prediction of the world cup champion builds on two separate components. First, you need to reveal the individual team strengths – “who is best?”, so to speak. Afterwards, you need to simulate the evolution of the championship, given the actual world cup group drawings. This accounts for the fact that even quite capable teams might still miss the playoffs, given that they were drawn into a group of hard competitors.

Revealing the team strength turns out to be the hard part of the problem, as there exists no simple linear ranking for teams from best to worst. A team that might win more games on average still could have its problems with a less successful team, simply because they fail to adjust to the opponents style of play. In other words: tough tacklings and fouls could be the skillful players’ death.

Hence, Andreas Groll and Gunther Schauberger chose a quite complex approach: they determine the odds of a game through the number of goals that each team is going to score. Thereby, again, the likelihood of scoring more goals than the opponent depends on much more than just a single measure of team strength. First, the number of own goals depends on both teams’ capabilities: your own, as well as that of your opponent. As mediocre team, you score more goals against underdogs than against title aspirants. And second, your strength might be unevenly distributed across different parts of the team: your defense might be more competitive than your offensive or the other way round. As an example, although Switzerland’s overall strength is not within reach to the most capable teams, their defense during the last world cup still was such insurmountable that they did not receive a single goal (penalty shooting excluded).

The first preliminary model shown in the research seminar did seem to do a great job in revealing overall team strength already. However, subtleties as the differentiation between offensive and defense were not included yet. The final version, in contrast, now even allows such a distinction. Furthermore, the previous random effects model did build its prediction mainly on the data of past results itself, referring to explanatory co-variates only minor. Although this in no way indicates any prediction inaccuracies, one still would prefer models to have a more interpretable structure: not only knowing WHICH teams are best, but also WHY. Hence, instead of directly estimating team strength from past results, it is much nicer to have them estimated as a result of two components: the strength predicted by co-variates like FIFA rank, odds, etc, plus a small deviation found by the model through past results itself. As a side effect, the model should also become more robust against structural breaks this way: a team with very poor performance in the past now still could be classified as good if indicators of current team strength (like the number of champions league players or the current odds) hint to higher team strength.

Building on explanatory variables, however, the efficient identification of variables with true explanatory power out of a large set of possible variables is the real challenge. Hence, instead of throwing in all variables at once, their regularization approach allows to gradually extend the model by incorporating the variable with best explanatory power among all not yet included variables. This variable selection seems to me to be the big selling point of their statistical model, and with both Andreas Groll and Gunther Schauberger having prior publications in the field already, they most likely should know what they are doing.

From what I have heard, I think we can expect a technical report with more detailed analysis within the next weeks. I’m already quite excited about getting to know how large the estimated distinction between offensive and defense actually turns out to be in their model. Hopefully, we will get these results at a still early stage of the running world cup. The problem, however, is that some explanatory variables within their model could only be determined completely when all the team’s actual squads were known, and hence they could start their analysis only very shortly prior to the beginning of the world cup. Although this obviously caused some delay for their analysis, this made sure that even possible changes of team strength due to injuries could be taken into account. I am quite sure, however, that they will catch up on the delay during the next days, as I think that they are quite big football fans themselves, and hence are most likely as curious about the detailed results as we areā¦

## spotted elsewhere: academic networking on LinkedIn

Although I myself do not have an account at LinkedIn yet, I’d like to share the following blog post entry on How to become an academic networking pro on LinkedIn. In light of this post, LinkedIn really seems to have some potential to letting people get in touch with other researchers.

## Julia language: A letter of recommendation

After spending quite some time using Julia (a programming language for technical computing) during the last few months, I am confident enough to provide kind of a “letter of recommendation” by now. Hence, I decided to list some of the features that make Julia appealing to me, while also interspersing some resources on Julia that I found helpful and worth sharing.

## spotted elsewhere: best practices for scientific computing

Nowadays, a lot of time of everyday research is spent in front of computers. Especially in data analysis, of course, computers are an elementary part of science. Nevertheless, most researchers still seem to have not gotten a real training in computer science, but tend to just develop their own manners for getting the job done.

Greg Wilson, together with the other members of the software training group **Software Carpentry**, devotes his time to promoting best practices of the computer science community into other fields of the scientific community. I highly recommend his newly published paper Best Practices for Scientific Computing, in which he lists a number of recommendations for an improved workflow in scientific computing. Also, make sure to check the Software Carpentry homepage, which provides a number of short video tutorials for a bunch of topics that are fundamental to any data analysis.

## Inheriting type behavior in Julia

In object oriented programming languages, classes can inherit from classes of objects on a higher level in the class hierarchy. This way, methods of the superclass will apply to the subclass as well, given that they are not explicitly re-defined for the subclass. In many regards, super- and subclasses hence behave similarly, allowing the same methods to be applied and similar access behavior. Joined together, they hence build a coherent user interface.

In Julia, such a coherent interface for multiple types requires a little bit of extra work, since Julia does not allow subtyping for composite types. Nevertheless, Julia’s flexibility generally allows composite types to be constructed such that they emulate the behavior of some already existing type. This only requires a little bit of extra coding, but can be implemented efficiently through metaprogramming.

## spotted elsewhere: The Setup

In case you sometimes wonder what might be the best tool for a job, just take a look at usesthis.com, and see what other people use to get stuff done. For example, the well known R programmer and developer of ggplot, Hadley Wickham, shares a list of his favorite tools.

## spotted elsewhere: animated education videos

When it comes to education, I believe in two simple things:

- the more entertaining and exciting we make education, the more people will focus while learning, and the better they will concentrate
- the more senses we manage to involve, the better people will remember what they have learned

One simple way of dealing with both issues is through animated videos. Such animations can be a quite entertaining way to transmit knowledge, while simultaneously addressing both auditory and visual senses.

For a prime example of such animated videos, take a look at the RSA Animate video on Changing Education Paradigms, which is only one of a series of many animated videos of the Royal Society for the encouragement of Arts, Manufactures and Commerce.

Even complex economic topics can be presented quite entertaining this way. Simply take a look at the animated video on How the Economic Machine Works by Ray Dalio:

## Real world quantitative risk management: estimation risk and model risk

Often, when we learn about a certain quantitative model, we solely focus on deriving quantities that are implied by the model. For example, when there is a model of the insurance policy liabilities of an insurance company, usually the only issue is the derivation of the risk that is implied by the model. Implicitly, however, this is nothing else than the answer to the question: “Given that the model is correct, what is it that we can deduce from it?” One very crucial point in quantitative modeling, however, is that in reality, our model will never be completely correct!

This should not mean that quantitative models are useless. As George E. P. Box has put it: “Essentially, all models are wrong, but some are useful.” Deducing properties from wrong models, like for example value-at-risk, may still help us to get a quite good notion about the risks involved. In our measurement of risk, however, we need to take into account one additional component of risk: the risk that our model is wrong, which would make any results deducted from the model wrong as well. This risk arises from the fact that we do not have full information about the true underlying model. Ultimately, we can distinguish between three different levels of information.

First, we could know the true underlying model, and hence the true source of randomness. This way, exact realizations from the model are still random, but we know the true probabilities, and hence can perfectly estimate the risk involved. This is how the world sometimes appears to be in textbooks, when we only focus on the derivation of properties from the model, without ever reflecting about whether the model really is true. In this setting, risk assessment simply means the computation of certain quantities from a given model.

On the next level, with slightly less information, we could still know the true structure of the underlying model, while the exact parameters of the model now remain unobserved. Hence, the parameters need to be estimated from data, and the exact probabilities implied by the true underlying model will not be known. This way, we will not be able to manage risks exactly the way that we would like to, as we are forced to act on estimated probabilities instead of true ones. In turn, this additionally introduces estimation risk into the risk assessment. The actual size of estimation risk depends on the quality of data, and in principle could be eliminated through infinite sample size.

And, finally, there is the level of information that we encounter in reality: neither the structure of the model nor the parameters are known. Here, large sample sizes might help us to detect the deficiencies of our model. Still, however, we will never be able to retrieve the real true data generating process, so that we have to face an additional source of risk: model risk.

Hence, quantitative risk management is much more than just calculating some quantities from a given model. It is also about finding realistic models, assessing the uncertainty associated with unknown parameters, and validating the model structure with data. We now want to clarify the consequences of risk management under incomplete information about the underlying probabilities. Therefore, we will look at an exemplary risk management application, where we gradually loosen the assumptions towards a more realistic setting. The general setup will be such that we want to quantify the risk of an insurance company under the following simplifying assumptions:

- fix number of policy holders
- deterministic claim size
- given premium payments