Are you a good judge of probability? Do you take into account probability when making decisions that involve an element of risk? According to former options trader Nassim Taleb, most people have a poor grasp of real-world probability, and as a result, they misunderstand the likelihood of rare events and consequently don’t plan for risk appropriately. In his book Fooled by Randomness, he cites three reasons for our difficulty in understanding how probability plays out in the real world: 1) we don’t properly interpret the past, 2) we can’t predict the future, and 3) we don’t insure against risk properly.
Can you think of a rare event—that happened either in history or in your personal life? Looking back, how likely is it to it happen again? More generally, do you think people under- or overestimate the likelihood of rare events? Rare events happen infrequently enough that we sometimes are lulled into believing they’re rarer than they actually are so that when they do happen, we are more surprised than we should be. According to Nassim Taleb, the author of Fooled by Randomness, people tend underestimate the likelihood of rare events for these reasons: 1) we don’t properly interpret the past,
What is survivorship bias? How does this bias cause us to overestimate the likelihood of success? Survivorship bias is the tendency to mistake the “surviving ” or successful sample as representative of the entire group. This bias causes people to see examples of enormous success as representative of the kind of success any person can expect in that venture or endeavor. For example, people see a fabulously wealthy stockbroker and think, “Trading is very profitable.” Or they see a bestselling author and think, “Writing is a great way to get rich.” In this article, we’ll look at how survivorship bias
How much weight do you give to randomness or uncertainty when making decisions? Do you think success is pure luck? According to Nassim Taleb, randomness is a hugely underestimated factor when it comes to decision-making, especially in fields that are greatly affected by randomness (e.g. trading, economics, and politics). He cites three reasons for our difficulty in appreciating the power of randomness: 1) we’re guided by our primitive brain, 2) we don’t understand probability, and 3) we see meaning when there’s none. Keep reading to learn why we have such trouble comprehending randomness, and how our brain’s wiring makes it
What is the EWMA formula? Why shouldn’t you rely on raw, weight loss measurements to track your progress? EWMA stands for the Exponentially Weighted Moving Average. In The Hacker’s Diet, John Walker suggests using this formula for tracking your weight loss progress rather than focusing on the daily weight fluctuations which can be caused by a number of variables. The EWMA formula, on the other hand, tracks the trend of your weight loss. Here is how to use the EWMA formula to track your weight loss.
What role does luck play in success? Do you tend to attribute your own successes to luck or effort? People often overestimate the influence of effort in success. Though hard work, skill, and intelligence are often necessary first steps toward success, they rarely account for runaway success, which is far more often due to luck—a positive rare event plus a lack of negative rare events. In today’s article, we’ll talk about luck and success—how huge of a role luck plays in bestowing success and why we often mistake it for skill.
What’s a Fermi estimation problem? What kinds of information does the Fermi problem probe for? A Fermi problem is a problem that involves making a justified estimation about quantities, degrees, probabilities, or variances. Fermi problems are solved by breaking down seemingly impossible questions into smaller and smaller questions. The idea is that eventually, you’ll be able to separate questions that are truly unknown from questions for which you can at least make an educated guess. Below is an example of a Fermi problem.
Is Phillip Tetlock’s Superforcasting worth reading? What was Tetlock’s inspiration in writing the book? The idea for Superforecasting came from Tetlock’s experiences with the Expert Political Judgment and Good Judgment Project forecasting experiments, during which Tetlock and his team discovered that some people are significantly better at predicting the future than others. Tetlock and Gardner set out to explore exactly what sets “superforecasters” apart from regular people; Superforecasting is the result. This Superforecasting review takes a look at the book’s intellectual context, background, impact, and discusses its key strengths and weaknesses.
Do you know how to calculate your net worth? How much money have you earned over your lifetime? Calculating your net worth and lifetime earnings is part of the process of improving your relationship with money and living a life you love. When you have a clear picture of where you stand, it’s easier to make wise decisions with your money. Read more to learn how to calculate your net worth and lifetime earnings.
What are the different project estimation techniques in software engineering? What are some things you should take into account when estimating the completion deadline of a software development project? When you’re programming something for someone, they always want to know when it will be done. Most of the time, you won’t know exactly how long something will take, so you’ll provide an estimate instead of a guarantee. There are many methods you can use to give your managers and clients an estimation, and we’ll cover three of the options.