It's a numbers game

I recently wrote an entry about the idea cum hoc ergo propter hoc - Correlation does not imply causation...
So I was interested to read a post on the Talent Imitates, Genius Steals blog about a book called Fooled by Randomness. - "an exploration of the huge role of randomness in life".

"His core thesis is that we think we know how things work because our brains like cause and effect so we apply a deterministic model to observations, which in turn leads us to make mistakes and leaves us open to being 'blown up' [trader lingo for losing way beyond what you believed possible] by very rare events of huge magnitude [he argues that in a sufficiently large samples, extraordinary high magnitude events are inevitable - the 'black swan' theory].

"The book …(has) interesting implications for the arts and sciences of persuasion.

"Taleb dismisses classical economics as completely pointless and I entirely agree.

Classical economics is a normative science - it describes how things should be in an idealised model, ceteris paribus - which means that it is, basically, science fiction - it simply doesn't describe how things actually are."

"The foundation of this fiction is the idea of Homo Economicus - rational man - that makes decisions via a cost benefit analysis of each option and always works towards the highest possible personal utility."

After comments made by a professor of economics about the future of New Zealand's intelligence based on cockamaimee ideas about eugenics I find this assertion entertainingly palatable.

It's probably a stretch of 'fair use' to quote much more. I'm looking forward to getting my hands on a copy of the book.

The blog's comments about the possible implications for brands and marcomms are also interesting too:

"…the role of communication could be simply establishing the somatic markers in association with brands, so that when consumers hit the painful decision of which jam to buy, the markers kick in and lubricate the decision, preventing paralysis and panic attack."

Read the original post.

Footnote: I'm also reminded of a story about an stock broker who bought a mailing list of prospective investment clients. To half of them he recommended a stock would rise in the next month. To the other half he warned that the same stock would fall. The stock rose. A month later he followed up the prospects who had received his positive predicition. In the letter he recommended another stock to half of the list and warned the other half of its risks. A month later he followed up. Once again he recommended a stock to half and warned the other half of the risks. Of course he had a 100 percent chance of being right 50% of the time. The clients who had recieved three successful tips were convinced the guy was a genius and many became clients - miraculously the broker's magical ability assumed the same measure of success and failure as the other lucky/unlucky mortals on Wall Street from that day forward.


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