When Lance Armstrong’s ex-teammate first accused him of using performance enhancing drugs, did you believe the accusation right away? I did. And when we learned that doping was common practice among top cyclists, did that surprise you? It didn’t surprise me. It was exactly what I expected. My bullshit filter worked perfectly in that case. Or maybe it was just my economics training. Whenever the following three conditions are met, you always have rampant cheating:
1. Cheating is easy
2. The payoff is huge.
3. The odds of getting caught are low
Eventually you’ll see the same sort of doping scandal in tennis. It’s obvious that many of the top players – especially the women – are up to something. You can tell by the sudden changes in body shape and performance. It’s especially obvious when you see players having their best performances after the age of thirty.
This brings me to hedge funds. Every now and then – such as this week – a story trickles out that a hedge fund manager has been accused of illegal insider trading. Prior to the accusations, we tend to take hedge funds at their word that they have secret algorithms and they do penetrating research to achieve their market-beating returns.
Allow me to get out in front with both tennis and hedge funds. My bullshit filter says tennis is filled with juiced-up cheaters, and the majority of hedge funds are criminal enterprises hiding behind “secret” algorithms.
Just to be clear, I don’t think Roger Federer is abusing any substances. His body shows no signs of it. I think Andy Roddick is clean too, or else he would still be playing. I would put the juicing rate at somewhere near 50% for the top thirty players.
I’m sure some hedge funds are legitimate too. The honest ones are easy to spot; most of them aren’t beating the market averages. Here again I would put the rate of cheating, including insider trading, at about 50%. I have no data to support that estimate; I’m just looking at the needle on my bullshit meter. Someday we’ll look back and laugh at the fact we ever believed hedge funds used secret algorithms.
What does your bullshit meter tell you about tennis and hedge funds? What percentage do you believe are cheaters?