Money and Finance
- The Tendency To Stop Considering Other Possible Explanations After Reaching A Diagnosis...
The quote below is from Peter Bevelin in his book Seeking Wisdom: From Darwin to Munger. It was in reference to a medical study, but I think it also applies well to investing. The single most common cause of cognitive-based errors was the...
- Why Doesn’t America Like Science? - By Gillian Tett
Michael Bloomberg, mayor of New York, does not often hide his views. When he recently addressed an international economic forum at Columbia University, on the seemingly “dull” topic of science and politicians, however, his words were incendiary, even...
- Don’t Blink! The Hazards Of Confidence - By Daniel Kahneman
We often interact with professionals who exercise their judgment with evident confidence, sometimes priding themselves on the power of their intuition. In a world rife with illusions of validity and skill, can we trust them? How do we distinguish the...
- Wsj Book Review: "the Believing Brain"
Thanks to Daniel for passing this along. Superstitions arise as the result of the spurious identification of patterns. Even pigeons are superstitious. In an experiment where food is delivered randomly, pigeons will note what they were doing when the pellet...
- Hussman Weekly Market Comment: Clarity And Valuation
So overvalued, check. Overbought, check. Overbullish, check. Upward pressure on yields, check. Market internals? – certainly mixed, but not bad – and there's the wild card. Historically, markets featuring a combination of these other risks have...
Money and Finance
John Allen Paulos reviews "The Theory That Would Not Die" by Sharon Bertsch McGrayne
Sharon Bertsch McGrayne introduces Bayes’s theorem in her new book with a remark by John Maynard Keynes: “When the facts change, I change my opinion. What do you do, sir?”
Bayes’s theorem, named after the 18th-century Presbyterian minister Thomas Bayes, addresses this selfsame essential task: How should we modify our beliefs in the light of additional information? Do we cling to old assumptions long after they’ve become untenable, or abandon them too readily at the first whisper of doubt? Bayesian reasoning promises to bring our views gradually into line with reality and so has become an invaluable tool for scientists of all sorts and, indeed, for anyone who wants, putting it grandiloquently, to sync up with the universe. If you are not thinking like a Bayesian, perhaps you should be.
At its core, Bayes’s theorem depends upon an ingenious turnabout: If you want to assess the strength of your hypothesis given the evidence, you must also assess the strength of the evidence given your hypothesis. In the face of uncertainty, a Bayesian asks three questions: How confident am I in the truth of my initial belief? On the assumption that my original belief is true, how confident am I that the new evidence is accurate? And whether or not my original belief is true, how confident am I that the new evidence is accurate? One proto-Bayesian, David Hume, underlined the importance of considering evidentiary probability properly when he questioned the authority of religious hearsay: one shouldn’t trust the supposed evidence for a miracle, he argued, unless it would be even more miraculous if the report were untrue.
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Book: The Theory That Would Not Die: How Bayes' Rule Cracked the Enigma Code, Hunted Down Russian Submarines, and Emerged Triumphant from Two Centuries of Controversy
Bayes’s theorem, named after the 18th-century Presbyterian minister Thomas Bayes, addresses this selfsame essential task: How should we modify our beliefs in the light of additional information? Do we cling to old assumptions long after they’ve become untenable, or abandon them too readily at the first whisper of doubt? Bayesian reasoning promises to bring our views gradually into line with reality and so has become an invaluable tool for scientists of all sorts and, indeed, for anyone who wants, putting it grandiloquently, to sync up with the universe. If you are not thinking like a Bayesian, perhaps you should be.
At its core, Bayes’s theorem depends upon an ingenious turnabout: If you want to assess the strength of your hypothesis given the evidence, you must also assess the strength of the evidence given your hypothesis. In the face of uncertainty, a Bayesian asks three questions: How confident am I in the truth of my initial belief? On the assumption that my original belief is true, how confident am I that the new evidence is accurate? And whether or not my original belief is true, how confident am I that the new evidence is accurate? One proto-Bayesian, David Hume, underlined the importance of considering evidentiary probability properly when he questioned the authority of religious hearsay: one shouldn’t trust the supposed evidence for a miracle, he argued, unless it would be even more miraculous if the report were untrue.
....................
Book: The Theory That Would Not Die: How Bayes' Rule Cracked the Enigma Code, Hunted Down Russian Submarines, and Emerged Triumphant from Two Centuries of Controversy
- The Tendency To Stop Considering Other Possible Explanations After Reaching A Diagnosis...
The quote below is from Peter Bevelin in his book Seeking Wisdom: From Darwin to Munger. It was in reference to a medical study, but I think it also applies well to investing. The single most common cause of cognitive-based errors was the...
- Why Doesn’t America Like Science? - By Gillian Tett
Michael Bloomberg, mayor of New York, does not often hide his views. When he recently addressed an international economic forum at Columbia University, on the seemingly “dull” topic of science and politicians, however, his words were incendiary, even...
- Don’t Blink! The Hazards Of Confidence - By Daniel Kahneman
We often interact with professionals who exercise their judgment with evident confidence, sometimes priding themselves on the power of their intuition. In a world rife with illusions of validity and skill, can we trust them? How do we distinguish the...
- Wsj Book Review: "the Believing Brain"
Thanks to Daniel for passing this along. Superstitions arise as the result of the spurious identification of patterns. Even pigeons are superstitious. In an experiment where food is delivered randomly, pigeons will note what they were doing when the pellet...
- Hussman Weekly Market Comment: Clarity And Valuation
So overvalued, check. Overbought, check. Overbullish, check. Upward pressure on yields, check. Market internals? – certainly mixed, but not bad – and there's the wild card. Historically, markets featuring a combination of these other risks have...