Regression to the mean and chance

I think that Kahneman's body of work is of the most interesting contribution to psychology and economics of the last  decades. Kahneman's book "Thinking Fast and Slow" is a must read for anyone interested in understanding a little bit little about how human(s) (dynamics) work. Kahneman gives the impression in the book that the majority of his (and Amos Tversky's) results have been - after the usual initial struggle - well-accepted by the scientific community. This is far from the truth, but the book is a must read anyway.

By the way, Peter Kareiva, one the most influential conservation biologists in the world, asked during his seminar at UCSC this past January 2013 who among the audience had read Michael Sandel's last book "What Money Can't Buy: The Moral Limits of Markets". I was the only one. For me, it is absolutely necessary as as scientist to keep up with the psychological/philosophical/economic literature, and it is even more necessary for scientists dealing with conservation issues and projects. If you are not engaged in the current psychological/philosophical/economic discourse, you are bound to be irrelevant. No other options.

Here are some of the notes:

"Subjects’ unwillingness to deduce the particular from the general was matched only by their willingness to infer the general from the particular."

"[On regression to the mean] Because we tend to be nice to other people when they please us and nasty when they do not, we are statistically punished for being nice and rewarded for being nasty."

“She says experience has taught her that criticism is more effective than praise. What she doesn’t understand is that it’s all due to regression to the mean.”

I agree 100% with this one below. The contribution of chance is way underestimated.

"A few years ago, John Brockman, who edits the online magazine Edge, asked a number of scientists to report their “favorite equation.” These were my offerings: success = talent + luck great success = a little more talent + a lot of luck."

"[Google's founders] a year after founding Google, they were willing to sell their company for less than $1 million, but the buyer said the price was too high."

"Professional investors, including fund managers, fail a basic test of skill: persistent achievement."

"The human mind does not deal well with nonevents."

"Indeed, the statistician David Freedman used to say that if the topic of regression comes up in a criminal or civil trial, the side that must explain regression to the jury will lose the case. Why is it so hard? The main reason for the difficulty is a recurrent theme of this book: our mind is strongly biased toward causal explanations and does not deal well with “mere statistics.”"

"The goal of venture capitalists is to call the extreme cases correctly, even at the cost of overestimating the prospects of many other ventures. For a conservative banker making large loans, the risk of a single borrower going bankrupt may outweigh the risk of turning down several would-be clients who would fulfill their obligations. In such cases, the use of extreme language (“very good prospect,” “serious risk of default”) may have some justification for the comfort it provides, even if the information on which these judgments are based is of only modest validity."

Showers are always good.

"However, it is clear that for the large majority of individual investors, taking a shower and doing nothing would have been a better policy than implementing the ideas that came to their minds."

"The diagnostic for the existence of any skill is the consistency of individual differences in achievement. The logic is simple: if individual differences in any one year are due entirely to luck, the ranking of investors and funds will vary erratically and the year-to-year correlation will be zero. Where there is skill, however, the rankings will be more stable. The persistence of individual differences is the measure by which we confirm the existence of skill among golfers, car salespeople, orthodontists, or speedy toll collectors on the turnpike."

"Experienced radiologists who evaluate chest X-rays as “normal” or “abnormal” contradict themselves 20% of the time when they see the same picture on separate occasions."

"But this is what always happens when a project ends reasonably well: once you understand the main conclusion, it seems it was always obvious."

"(the classic “triumph of hope over experience”)"

"The chances that a small business will thesurvive for five years in the United States are about 35%."

"I have yet to meet a successful scientist who lacks the ability to exaggerate the importance of what he or she is doing, and I believe that someone who lacks a delusional sense of significance will wilt in the face of repeated experiences of multiple small failures and rare successes, the fate of most researchers."

Do yourself a favor and read the whole book.

 

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