Friday, July 30, 2010
Tuesday, July 27, 2010
Overconfidence Trick
All of us have a bias that reinforces a false belief in the certainty of what we believe to be true. It’s called the overconfidence effect. Basically, we construct a mental map in our minds of what is probable and what is improbable. Over time, these beliefs harden and become what is certain and what is certainly not. I got a true test of this in business school.
My professor asked us some off the wall question like how much does the earth weigh. After we wrestled with the question and wrote down our answers, he then asked us to put a 95% confidence interval around the answer. He said give me a range of numbers that you believe the earth’s weight is 95% certain to be in. We mulled this over and answered. Result? Our 95% confidence interval was wrong something like 40% of the time within the class. Why?
Basically, by asking us the first question: how much does the earth weigh and giving us a chance to think about it, our professor was secretly giving our little pea brains a chance to become overconfident. By the time he asked us the second question, we had become anchored to the first answer. Essentially, he asked us to think outside the box and the mix of our overconfidence and anchoring caused us to make catastrophically wrong answers.
That’s how humans work. And this was a 10-minute exercise. Just think if you spend your life looking at economic events and making predictions. The likelihood of your being anchored to a specific prediction is that much greater. Eventually, you become so overconfident about this prediction that you are willing to bet the farm on the outcome.
Read more: http://www.
My professor asked us some off the wall question like how much does the earth weigh. After we wrestled with the question and wrote down our answers, he then asked us to put a 95% confidence interval around the answer. He said give me a range of numbers that you believe the earth’s weight is 95% certain to be in. We mulled this over and answered. Result? Our 95% confidence interval was wrong something like 40% of the time within the class. Why?
Basically, by asking us the first question: how much does the earth weigh and giving us a chance to think about it, our professor was secretly giving our little pea brains a chance to become overconfident. By the time he asked us the second question, we had become anchored to the first answer. Essentially, he asked us to think outside the box and the mix of our overconfidence and anchoring caused us to make catastrophically wrong answers.
That’s how humans work. And this was a 10-minute exercise. Just think if you spend your life looking at economic events and making predictions. The likelihood of your being anchored to a specific prediction is that much greater. Eventually, you become so overconfident about this prediction that you are willing to bet the farm on the outcome.
Read more: http://www.
Friday, July 23, 2010
Silly Forecasters
The three types of forecasters about the the future of financial markets, politics, or climate.
1. Those that don’t know.
2. Those that don’t know they don’t know.
3. Those that know they don’t know but get paid money to pretend they do.
1. Those that don’t know.
2. Those that don’t know they don’t know.
3. Those that know they don’t know but get paid money to pretend they do.
Thursday, July 22, 2010
The Trouble with Economics
http://pragcap.com/whats-wrong-with-economics
"Late one Friday night he was going down Broad Street and he saw this respectably dressed young man searching around under a street light. Curious, Trevor asked what was the problem. The fellow said that a Sir Grantley had slipped out of his wallet, and he was trying to find it. After a further minute or so of futile searching, Trevor said to the young man: “Let’s do this thing logically; exactly where were you standing when the $100 bill fell?” The young man pointed off into the darkness, 20 metres away."
Dumbfounded, Trevor asked the obvious: “But if the money dropped over there, why are you searching here?”
“Because this is where the light is”.
This, I submit, is how we often do economics. Our theories can’t deal with reality, so we ignore the real world and spend our time “testing” our theories.
Dumbfounded, Trevor asked the obvious: “But if the money dropped over there, why are you searching here?”
“Because this is where the light is”.
This, I submit, is how we often do economics. Our theories can’t deal with reality, so we ignore the real world and spend our time “testing” our theories.
Wednesday, July 21, 2010
High Cholesterol Food May Reduce Blood Pressure
Egg-Irony:
Researchers in Canada are reporting evidence that eggs - often frowned upon for their high cholesterol content - may reduce another heart disease risk factor - high blood pressure. They describe identification of egg proteins that act like a popular group of prescription medications in lowering blood pressure. The report appeared in the Feb. 11 issue of ACS' Journal of Agricultural and Food Chemistry, a bi-weekly publication.
Read more »
Researchers in Canada are reporting evidence that eggs - often frowned upon for their high cholesterol content - may reduce another heart disease risk factor - high blood pressure. They describe identification of egg proteins that act like a popular group of prescription medications in lowering blood pressure. The report appeared in the Feb. 11 issue of ACS' Journal of Agricultural and Food Chemistry, a bi-weekly publication.
Read more »
Sunday, July 11, 2010
Saturday, July 10, 2010
Friday, July 09, 2010
Wednesday, July 07, 2010
Tuesday, July 06, 2010
Simply Simplistic
The terms artsy, arty and artsy-fartsy have negative connotations. If you don't want to insult writers, painters and artists, don't use the terms. Artistic is a better choice.
artsy –adjective, art·i·er, art·i·est. Informal .
1. Characterized by a showy, pretentious, and often spurious display of artistic interest, manner, or mannerism. 2. Showily or affectedly artistic.
artsy –adjective, art·i·er, art·i·est. Informal .
1. Characterized by a showy, pretentious, and often spurious display of artistic interest, manner, or mannerism. 2. Showily or affectedly artistic.
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