Re: Nassim Nicholas Taleb und der Zufall

verfasst von CRASH_GURU, 07.01.2005, 13:58

-->IT'S NOT SUCH A SMALL WORLD AFTER ALL
by Nassim Nicholas Taleb

You get an anonymous letter on January 2nd informing you
that the market will go up during the month. It proves to
be true, but you disregard it, owing to the well-known
January effect (stocks have gone up historically during
January). Then you receive another one on Feb 1st telling
you that the market will go down. Again, it proves to be
true. Then you get another letter on March 1st - same
story. By July you are intrigued by the prescience of the
anonymous person and you are asked to invest in a special
offshore fund. You pour all your savings into it. Two
months later, your money is gone. You go spill your tears
on your neighbor's shoulder and he tells you that he
remembers that he received two such mysterious letters. But
the mailings stopped at the second letter. He recalls that
the first one was correct in its prediction, the other
incorrect.

What happened? The trick is as follows. The con-operator
pulls 10,000 names out of a phone book. He mails a bullish
letter to one half of the sample, and a bearish one to the
other half. The following month he selects the names of the
persons to whom he mailed the letter whose prediction
turned out to be right, that is, 5,000 names. The next
month he does the same with the remaining 2,500 names,
until the list narrows down to 500 people. Of these there
will be 200 victims. An investment in a few thousand
dollars worth of postage stamps will turn into several
million.

It is not uncommon for someone watching a tennis game on
television to be bombarded by advertisements for funds that
did (until that minute) outperform others by some
percentage over some period. But, again, why would anybody
advertise if he didn't happen to outperform the market?
There is a high probability of the investment coming to you
if its success is caused entirely by randomness. This
phenomenon is what economists and insurance people call
adverse selection. Judging an investment that comes to you
requires more stringent standards than judging an
investment you seek, owing to such selection bias. For
example, by going to a cohort composed of 10,000 managers,
I have 2/100 chances of finding a spurious survivor. By
staying home and answering my doorbell, the chance of the
soliciting party being a spurious survivor is closer to
100%.

The same logic that applies to the spurious survivor, also
applies to the skilled person who has the odds markedly
stacked in her favor, but who still ends up going to the
cemetery. This effect is the exact opposite to the
survivorship bias. Consider that all one needs is two bad
years in the investment industry to terminate a risk-taking
career and that, even with great odds in one's favor, such
an outcome is very possible. What do people do to survive?
They maximize their odds of staying in the game by taking
black-swan risks; those that fare well most of the time,
but incur a risk of blowing up.

The most intuitive way to describe the data mining problem
to a non-statistician is through what is called the
birthday paradox, though it is not really a paradox, simply
a perceptional oddity. If you meet someone randomly, there
is a one in 365.25 chance of your sharing their birthday,
and a considerably smaller one of having the exact birthday
of the same year. So, sharing the same birthday would be a
coincidental event that you would discuss at the dinner
table. Now let us look at a situation where there are 23
people in a room. What is the chance of there being two
people with the same birthday? About 50%. For we are not
specifying which people need to share a birthday, any pair
works.

A similar misconception of probabilities arises from the
random encounters one may have with relatives or friends in
highly unexpected places."It's a small world!" is often
uttered with surprise. But these are not improbable
occurrences - the world is much larger than we think. It is
just that we are not truly testing for the odds of having
an encounter with one specific person, in a specific
location at a specific time. Rather, we are simply testing
for any encounter, with any person we have ever met in the
past, and in any place we will visit during the period
concerned. The probability of the latter is considerably
higher, perhaps several thousand times the magnitude of the
former.

When the statistician looks at the data to test a given
relationship, say to ferret out the correlation between the
occurrence of a given event, like a political announcement,
and stock market volatility, odds are that the results can
be taken seriously. But when one throws the computer at
data, looking for just about any relationship, it is
certain that a spurious connection will emerge, such as the
fate of the stock market being linked to the length of
women's skirts. And just like the birthday coincidences, it
will amaze people.

What is your probability of winning the New Jersey lottery
twice? One in 17 trillion. Yet it happened to Evelyn Adams,
whom the reader might guess should feel particularly chosen
by destiny. Using the method we developed above,
researchers Percy Diaconis and Frederick Mosteller
estimated at 30 to 1 the probability that someone,
somewhere, in a totally unspecified way, gets so lucky!

Some people carry their data mining activities into
theology - after all, ancient Mediterraneans used to read
potent messages in the entrails of birds. Michael Drosnin
provides an interesting extension of data mining into
biblical exegesis in The Bible Code. Drosnin, a former
journalist (seemingly innocent of any training in
statistics), aided by the works of a"mathematician,"
helped"predict" the former Israeli Prime Minister Yitzhak
Rabin's assassination by deciphering a bible code. He
informed Rabin, who obviously did not take it too
seriously. The Bible Code finds statistical irregularities
in the Bible; these help predict some such events. Needless
to say, the book sold well enough to warrant a sequel
predicting with hindsight even more such events.

The same mechanism is behind the formation of conspiracy
theories. Like The Bible Code, they can seem perfect in
their logic and can cause otherwise intelligent people to
fall for them. I can create a conspiracy theory by
downloading hundreds of paintings from an artist or group
of artists and finding a constant among all those paintings
(among the hundreds of thousand of traits). I would then
concoct a conspiratorial theory around a secret message
shared by these paintings. This is seemingly what the
author of the bestselling The Da Vinci Code did.

My favorite time is spent in bookstores, where I aimlessly
move from book to book in an attempt to make a decision as
to whether to invest the time in reading it. My buying is
frequently made on impulse, based on superficial, but
suggestive clues. Frequently, I have nothing but a book
jacket as appendage to my decision making. Jackets often
contain praise by someone, famous or not, or excerpts from
a book review. Good praise by a famous and respected person
or a well-known magazine would sway me into buying the
book.

What is the problem? I tend to confuse a book review, which
is supposed to be an assessment of the quality of the book,
with the best book reviews, marred with the same
survivorship biases. I mistake the distribution of the
maximum of a variable with that of the variable itself. The
publisher will never put on the jacket of the book anything
but the best praise. Some authors go even a step beyond,
taking a tepid or even unfavorable book review and
selecting words in it that appear to praise the book. One
such example came from one Paul Wilmott (an English
financial mathematician of rare brilliance and irreverence)
who managed to announce that I gave him his"first bad
review," yet used excerpts from it as praise on the book
jacket (we later became friends, which allowed me to
extract an endorsement from him for my book).

The first time I was fooled by this bias was upon buying,
when I was 16, Manhattan Transfer, a book by John Dos
Passos, the American writer, based on praise on the jacket
by the French writer and"philosopher" Jean-Paul Sartre,
who claimed something to the effect that Dos Passos was the
greatest writer of our time. This simple remark, possibly
blurted out in a state of intoxication or extreme
enthusiasm, caused Dos Passos to become required reading in
European intellectual circles, as Sartre's remark was
mistaken for a consensus estimate of the quality of Dos
Passos rather than what it was, the best remark. (In spite
of such interest in his work, Dos Passos has reverted to
obscurity.)

I am frequently asked the question: When is it truly not
luck? There are professions in randomness for which
performance is low in luck: Like casinos, which manage to
tame randomness. In finance? Perhaps. All traders are not
speculative traders: There exists a segment called market
makers whose job is to derive, like bookmakers, or even
like store owners, an income against a transaction. If they
speculate, their dependence on the risks of such
speculation remains too small compared to their overall
volume. They buy at a price and sell to the public at a
more favorable one, performing large numbers of
transactions. Such income provides them some insulation
from randomness. Such category includes floor traders on
the exchanges, bank traders who"trade against order flow,"
moneychangers in the souks of the Levant. The skills
involved are sometimes rare to find: Fast thinking,
alertness, a high level of energy, an ability to guess from
the voice of the seller her level of nervousness; those who
have them make a long career (that is, perhaps a decade).
They never make it big, as their income is constrained by
the number of customers, but they do well
probabilistically. They are, in a way, the dentists of the
profession.

Regards,

Nassim Nicholas Taleb
for The Daily Reckoning

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gesamter Thread:

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      • Die Systempresse - Taktiker, 06.01.2005, 12:06
        • Re: Die Systempresse - certina, 06.01.2005, 13:00
  • Unsinn - politico, 06.01.2005, 11:36
    • Re: Unsinn - apoll, 06.01.2005, 12:02
      • Re: Unsinn - apoll - nereus, 06.01.2005, 13:06
        • Re: Unsinn - apoll - XERXES, 06.01.2005, 13:20
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              • Re: Wie wärs andersrum? Warte aufs Beben.. und zünde dann die Bombe - igelei - nereus, 06.01.2005, 17:21
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  • Re: AsianTsunami - the ultimate conspiracy (o.Text) - tstg, 06.01.2005, 13:47
    • Re: wieso, wenn durch eine - bonjour, 06.01.2005, 13:52
      • cui bono? - tstg, 06.01.2005, 13:59
    • Re: AsianTsunami - the ultimate conspiracy (o.Text) - CRASH_GURU, 06.01.2005, 14:17
      • CNBC hat gemeldet, da es eine A-Bombe war? - tstg, 06.01.2005, 14:32
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            • Re: Ist hier ein Gerüchteforum?hi (o.Text) - certina, 06.01.2005, 15:28
            • Re: Ist hier ein Gerüchteforum? - certina, 06.01.2005, 15:30
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                • Re: Was ist denn die Begründung dafür, dass das... - ---Elli---, 10.01.2005, 01:00
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          • Re: Nassim Nicholas Taleb und der Zufall - CRASH_GURU, 07.01.2005, 13:58
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