Bullsh*t Research: French Election Edition

For those who may be unfamiliar with Heisenberg’s “Bullsh*t Research” series, I encourage you to read the first two installments for some useful (not to mention humorous) background information:

Today’s third installment comes courtesy of an otherwise excellent Morgan Stanley note that explores French election risk and how to trade it.

Some of the analysts on this particular piece are quite good, but as regular readers are aware, sometimes we have to put aside our affinity for otherwise smart people in the interest of humor. As I alluded to in a previous post, just because we enjoy NBA blooper reels doesn’t mean we think professional basketball is a worthless enterprise. We, as humans, just like to laugh.

Ok, so anyone who is familiar with Nassim Nicholas Taleb (who I thoroughly enjoy reading for his insights on probability and statistics, but who I thoroughly despise for effectively inspiring and validating dangerous political movements) knows we can’t equate Mediocristan and Extremistan. If we do, we say all kinds of dumb sh*t. See here for an amusing example.

Apparently realizing this, Morgan Stanley attempts to talk its way out of a conundrum – with disastrous results.

Submitted for your (dis)approval:

Can an event that has, say,a 10% probability really happen? Of course it can. Does that mean that the overall framework is wrong, i.e., that the estimated odds were incorrect? No, it doesn’t (not necessarily). It means that the less likely outcome has materialised. After all, it had some probability of materialising. Of course, while there are so many possible scenarios given multiple candidates and a two-round system, only one will happen in the end. So, when assessing whether Marine Le Pen wins or loses, it either happens or it doesn’t.




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