Wednesday, December 24, 2008

Fooled By Randomness: Chapter 11

The following summary was written by Frank Voisin, who regularly writes for Frankly Speaking. Recently, Frank sold four restaurants and returned to school to complete a combined LLB/MBA.

You are diagnosed with cancer, but have a 72% chance of surviving the next 5 years. You are overjoyed, but why? After all, you have a 28% chance of death. But people do not look at things this way. Our brains are wired to think of one state only. So rather than thinking of yourself as 72% alive and 28% dead, you think of yourself as 100% alive. We are probability blind which causes all of the biases we have discussed previously.

Taleb discusses the many biases that affect our ability to understand probability, including the difficulty in determining causality (and our likely use of the post hoc ergo propter hoc fallacy), and filtering out noise (rather choosing often to interpret the noise!).

As a great man GI Joe said, knowing is half the battle. By being aware of our biases, you can think critically about your decisions, interpret information more clearly, and formulate better decisions.

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