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November 30 - December 24, 2019
label a rare event as any behavior where the adage “beware of calm waters” can hold.
associate rare events with any misunderstanding of the risks derived from a narrow interpretation of past time series.
It is an oddity that most fixed-income financial instruments present rare events.
Psychologists recently found out that people tend to be sensitive to the presence or absence of a given stimulus rather than its magnitude.
These traders lose money frequently, but in small amounts, and make money rarely, but in large amounts. I call them crisis hunters. I am happy to be one of them.
This asymmetry in knowledge is not trivial; it is central in this book—it
had experienced a swing from scholasticism, entirely based on deductive reasoning (no emphasis on the observation of the real world) to, owing to Francis Bacon, an overreaction into naive and unstructured empiricism.
(epistemologists operating in the applied sciences are often called methodologists or philosophers of science).
You can more safely use the data to reject than to confirm hypotheses. Why? Consider the following statements:
conclude, extreme empiricism, competitiveness, and an absence of logical structure to one’s inference can be a quite explosive combination.
Science is mere speculation, mere formulation of conjecture.
Popper believed that any idea of Utopia is necessarily closed owing to the fact that it chokes its own refutations.
Induction is going from plenty of particulars to the general.
It is very handy, as the general takes much less room in one’s memory than a collection of particulars. The effect of such compression is the reduction in the degree of detected randomness.
but I will not use them to manage my risks and exposure. Surprisingly, all the surviving traders I know seem to have done the same.
A small knowledge of probability
can lead to worse results than no knowledge at all.
The moral of the book is that the wealthiest are to be found among those less suspected to be wealthy. On the other hand, those who act and look wealthy subject their net worth to such a drain that they inflict considerable and irreversible damage to their brokerage account.
The virtue of capitalism is that society can take advantage of people’s greed rather than their benevolence,
Becoming rich is not directly a moral achievement,
A result is that in real life, the larger the deviation from the norm, the larger the probability of it coming from luck rather than skills:
This can be easily verified in stories of very prominent people in trading rapidly reverting to obscurity, like the heroes I used to watch in trading rooms.
返回平常
Note that the larger the deviation, the more important its effect.
ergodicity, namely, that time will eliminate the annoying effects of randomness.
the survivorship bias depends on the size of the initial population.
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.
real randomness does not look random!
The reader no doubt has played a version of Buridan’s donkey, by “flipping a coin” to break some of the minor stalemates in life where one lets randomness help with the decision process.
Some economists, for example those of the efficient-market religion, believe that our studies should be based on the hypothesis that humans are rational and act rationally because it is the best thing for them to do (it is mathematically “optimal”).
The opposite is a positive science, which is based on how people actually are observed to behave.
In spite of economists’ envy of physicists, physics is an inherently positive science while economics, particularly microeconomics and financial eco...
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inferential mistake
“Respondents put too much confidence in the result of small samples and their statistical judgment showed little sensitivity to sample size.”The
It corresponds to the practice of estimating the frequency of an event according to the ease with which instances of the event can be recalled.
gauging the probability that a person belongs to a particular social group by assessing how similar the person’s characteristics are to the “typical” group member’s.
why the person you think knows physics so well cannot apply the basic laws of physics by driving well?
“Our brains are made for fitness not for truth”
We do not think when making choices but use heuristics;
We make serious probabilistic mistakes in today’s world
They believe (roughly) that we have three brains: The very old one, the reptilian brain that dictates heartbeat and that we share with all animals; the limbic brain center of emotions that we share with mammals; and the neocortex, or cognitive brain, that distinguishes primates and humans (note that even institutional investors seem to have a neocortex). While that theory of the Triune brain shows some over-simplification (particularly when handled by journalists), it seems to provide a framework for the analysis of brain functions.
Damasio’s Descartes’ Error and LeDoux’s Emotional Brain.
It seems that the emotions are the ones doing the job. Psychologists
He figured out that much of the connections from the emotional systems to the cognitive systems are stronger than connections from the cognitive systems to the emotional systems.
A journalist is trained in methods to express himself rather than to plumb the depth of things—the selection process favors the most communicative, not necessarily the most knowledgeable.
They most commonly get mixed up between absence of evidence and evidence of absence, a similar problem to the one we saw
In addition, the interpretation is not linear; a 2% move is not twice as significant an event as 1%, it is rather like four to ten times. A 7% move can be several billion times more relevant than a 1% move!
If my brain can tell the difference between noise and signal, my heart cannot.
