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Fooled by Randomness

Fooled by Randomness

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Published by Akash Sharma

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Published by: Akash Sharma on Aug 30, 2010
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04/22/2011

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Akash Sharma

PRESENTS

Fooled By Randomness
Uncertainty In Certainty

KEY FACTS New format of Mathematics Randomness present in surrounding environment and its impact Revel many perceptions and misconceptions about luck and chance Explains theory of randomness in light of the theory of determinism Uses various true and hypothetical examples Introduces a new facet of normal distribution curve with all dimensions of skewness .

y Integrate both the theories.current research methods are deterministic .Theory Vs Theory y Theory of determinism.everything can be determined with certainty from pervious patterns.nothing can be determined with 100 % certainty. SUN and the Solar System. accidents never happen and everything is reason based y Theory of randomness. accidents do happen and everything is not reason based y Earth.

that can not be controlled and that can only be qualitatively justified.Starts with the table of distinction One side (randomness side). ex.posses all those items that are caused by chance causes. signals etc ƒ ƒ .skills. noise etc ƒ Other side (determinism side)posses all those items that are caused by assignable causes. ex.luck. that can be controlled and that be justified quantitatively.

y Introduces the concept of randomness and rare events (the black swan) y Explains the understanding of human beings towards randomness y Explains the impact of these rare events .

Explains the human biasness towards the randomness € Explains the luck factor and probability blindness of human beings € .

PART-3 ‡ How human beings deal with the uncertainties/randomness .

poor trade record. good trade record. accounts for previous patterns.DERIVATION 1 By using the hypothetical example of Nero tulip and John. doesn·t account for previous patterns . author tries to explain the nature of investors and impact of randomness on humans ´ Nero takes less risk. less rich (resistive to randomness) ´ John takes high risk. more rich (victim of randomness) (fooled by randomness) ´ Principal applicable everywhere. no hidden patterns exist ´ .

its impact and role of randomness in risk. every conclusion/ studies/optimizations goes wrong y Financial markets as well as human research .Derivation 2 y Explains the risk.Russian roulette y Rare event/ black swan is always going to happen whose impact will be 4 times of every associating favorable and expected event y Under such event.

€ MONTE CARLO ENGINE.sample paths (sample histories) € One sample path leads to generation of certain result € Deviation in results of various sample paths will give the resistance measure against randomness € Financial markets as well as research (leads the formation of wrong conclusion due to wrongly adopted sample paths) .

Derivation 4 One randomness influenced person will generate such information that generate further randomness y Previous information is detrimental y Third law of thermodynamics y .

50 % are not resistive to randomness. 50 % people are over resistive to randomness € Both are fooled by randomness .€ Normal distribution curve.

€ Research various facts that sound irrational may find major relevance with the subject matter € .Human beings re fooled by randomness to such extent that rational people are commonly considered as irrational and vice versa.

DERIVATION 7 Fittest is richest but not observed to be surviving on LONG TERM (JOHN) Not fittest is not richest but observed to be the only surviving on LONG TERM (NERO) So the principal of survival of fittest is also fooled by randomness .

Derivation 8 y Normal distribution curve never holds good in actual practices y There will always be some skewness y There will always be two events A and B. one with high probability of occurrence and other will less probability of occurrence. the one with less probability will have 4 times the impact y APPLICABLE EVERYWHERE .

the black swan.y Time series analysis method used by mathematics and social sciences is major blunder y No previous patterns can be used to make future assumptions/predictions y Ex. bush s age statements .

due to some black swan event i. random in occurrence (fooled by randomness) So randomness impacts everything in practice including the research . but in long term they will be busted out from market.e.y All major success stories are luck y y y y enforced 10000 investors (313 lucky) (coin) 10000 investors (184 lucky) (balls) All these lucky rich people will be successful at short term.

FINAL STRIKE The cancer randomness ´ Actors selection ´ Not lucky ones are lucky ones and lucky ones are not lucky ones ´ Nero also ignores randomness at somewhere in some concern (everyone is susceptible for the black swan event) ´ .

CONCLUSIONS Every one gets fooled by randomness No one is able to understand the trap of randomness Less resistive people gets busted by randomness Over resistive ones get tortured by randomness Normal distribution curve is not applicable in actual world Mathematical methods are not applicable in behavioral and qualitative researches Future predications cant be made on basis of previous information Luck is qualitative aspect but can be exhibited quantitatively .

.Backlogs y The concept is very subjective in nature y Book leaves no space for negotiation. sometimes it defend science and sometimes it underestimate the scientific laws y Alternative theories = opportunity cost equations y Book is silent about nondistribution based statistical tests like ANOVA and chi-square.

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