Lies, Damned Lies, and Statistics
In an interesting post, Michael Batnick, the Irrelevant Investor, makes a critical point about the oft-overlooked limitations of data in the world of behavioral finance: http://theirrelevantinvestor.com/2018/04/04/the-limits-to-data/
“Using Excel shows you how a robot should allocate its lottery winnings.
It doesn't show you that 70% of human lottery winners go bankrupt.”
Darwin famously didn't trust complicated mathematics ("I have no faith in anything short of actual measurement and the Rule of Three," he wrote in a letter). He wasn't wrong: complex procedures can obscure what's going on 'under the hood.' This can render a formula's weaknesses virtually invisible.
Have you heard about the studies showing that irrelevant neuroscientific information in a research summary makes people rate the conclusion as more credible? The same seems to go for math—when people see some complex, technical information, they'd often rather just believe it instead of thinking critically.
By Signe Wilkinson, for the Philadelphia Daily News
http://www.bcps.org/offices/lis/researchcourse/images/statisticsirony.gif
