Estimating Certainty:
- Provide a numerical range for each category
- You should have about 90% confidence that the true figure lies within your provided range
- Ranges should be realistic approximations, i.e. not negative infinity to positive infinity
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The Availability Heuristic:
What's Your Best Guess?
For each of the pairs below, choose which of the two causes of death is more frequent in the United States:
- Strokes or Accidents
- Motor Vehicle Accidents or Cancer of the Digestive System
- Suicide or Homicide
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Would You Like to Buy a $20 bill?
Rules for $20 bill auction:
Bids must start at $2 and increase in $1 increments.
The auction ends when there are no new bids.
Any participant may make any valid bid at any time.
I will accept and acknowledge only the first bid received at any dollar level.
The highest and second highest bidders will pay their bids to the auctioneer (me).
The highest bigger will receive the $20 bill.
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Fuzzy Math and Divergent Opinions
A woman buys a $78 necklace at a jewelry store. She gives the jewler a check for $100. Because he does not have the $22 change on hand, he goes to another merchant next door. There, he exchanges the woman's check for $100 in cash. He returns and gives the woman the necklace and her change. Later, the check bounces and he must make it good to the other merchant (i.e., pay him $100). He originally paid $39 for the necklace. What is his total out-of-pocket loss?
$ 0 - $ 75
$ 76 - $150
$151 - $200
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How Do You Concentrate?
There are three individuals in white shirts passing around a basketball. Additionally, there are three individuals in black shirts passing around a basketball.
Your objective is to count the number of times the basketball is passed between individuals with white shirts.
http://viscog.beckman.uiuc.edu/grafs/demos/15.html
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Hedonic Happiness:
Would you rather make make $100,000 for ten consecutive years or make $1 million dollars in the first year and nothing for the next nine years?
Our happiness tends to depend on the quantity of positive feelings (The Postive Affect) than on the quality of that positive feeling. Therefore, pyscologically, it is better for us to have plently of okay news than one lump sum of great news.
What about for unhappiness?
It is better to lump all of the unpleasentness together than to spread out over a period of time.
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What is The Pattern?
Number Sequence: 2, 4, 6, ...
Try to guess the pattern by providing other number sequences.
Confirmation Bias Sequence: Numbers in Ascending Order
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What is The Next Digit?
5, 9, 5, 5, 4, 5, 10, 4, 5, 5, 4, ?
This line of numbers was created on the first input of Excel's random function, RAND(), multiplied by ten and rounded to a whole number. There is no pattern - however, it is natural for our mind to seek patterns. We must be willing to question our discovered patterns and accept that sometimes there is no pattern to find.
It is impossible for our brain to see anything in raw form without some interpretation.
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Read Me:
A BIRD IN THE
THE HAND IS WORTH
TWO IN THE BUSH
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The Best Trader in the World:
I can predict with absolute certainty if the Dow Jones will go up or down each week for a nominal fee of $10,000. If I provide you with correct prediction for four consecutive weeks in a row, will you be my client?
What are the qualities of a multi-millionaire? Of a CEO?
Courage, Risk-Taking, Optimism, Dedication, High-Energy, Intelligent, etc.
What about the graveyard?
Overcoming Misfortune (A Casanova Story):
Casanova felt that every time he got into difficulties, his luck star, his etoile, would pull him out of trouble. He was led to believe from his past luck that it was his intrinsic property to recover from hardship by running into new opportunities.
'Our enemies have tried to destroy us many times; but we always came back more resilient than before. We are invincible.'
Survival Bias - Given the fact that we survive a serious threat, we tend to retrospectively underestimate how risky the situation actually was.
Risk Taking - The restaurant business.
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The Narrative Fallacy
We tend to remeber stories better than facts.
What makes information more recallable?
1.) More Orderly
2.) Less Random
3.) Patterned
4.) Narratized (has context)
Imagine the following scenarios and estimate their odds:
a.) A massive flood somewhere in America in which more than a thousand people die.
b.) An earthquake in California, causing massive flooding, in which more than a thousand people die.
a.) Alex seemed happily married. He killed his wife.
b.) Alex seemed happily married. He killed his wife to get her inheritance.
Providing a reason for the flood and it being more imaginable, makes it seem far more likely.
Narrative Therapy (quote from The Black Swan, Nassim Taleb, 73):
"If you work in a randomness-laden profession ... you are likely to suffer burnout effects from that constant second-guessing of your past actions in terms of what payed out subsequently. ... Patient who spend fifteen minutes every day writing an account of their daily troubles feel indeed better about what has befallen them. You feel less guilty for not having avoided certain events; you feel less responsible for it. Things appear as if they were bound to happen."
Narratives makes past events appear more predictable, more expected, less random.
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Hindsight Fallacy:
The inability to remember or reconstruct the true sequence of events concerning an issue, event or problem makes history appear more explainable than it actually is.
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Forecasting Numbers Without Error Rates (a Common Practice, Has Three Fallacies)
Fallacy 1) Variability Matters
- The range of possible outcomes exceeds the value of the expected final number for making decisions. (Averagely shallow river example)
- Tend to take the projection too seriously without acknowledging accuracy issues.
Fallacy 2) Ten years from now is more uncertain than one year from now
- We tend to not adjust for inherently increasing incertainty as we forecast for longer period lengths.
- Our estimates have been horrible wrong in the past, why should they be better now? (Where did you buy your flying car?)
Fallacy 3) Not everything is in our control or in our ability to predict.
- We tend to not account for unknown variables or the possibility of them affecting our estimates.
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The Bell Curve (The Solution to All Problems?)
- We can use in variables where there is a rational reason for the largest not to be too far from the average or if there are strong forces of equilibrium after conditions diverge from the norm.
- Although unpredictable large deviations are rare, they cannot be dismissed as outliers, because their impact is so dramatic. (One single number can disrupt the averages)
- The rarer the event, the higher the error in our estimation of its probability
- Gambiling - When you have plenty of gamblers and limits on them, no single gambler will impact the total.
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That's My Birthday Too!!
How many people would you need to be 100% certain that at least two people share the same Birthday? (366 + 1 = 367)
How many people would you need to be 50% certain that at least two people share the same Birthday?
23!
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What Type of News Do You Like?
We tend to focus on winners or extreme examples (Best Trader in the World Example).
- International News is worse than National News
- National News is worse than State News
- State News is worse than Local News
We filter information. If we focus on the extremes (the really good and really bad), the natural result is that the extreme value of a large collection will be greater than that of a small one. Basic and logically, but we fail to see it all the time.
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