Measured Against Reality

Tuesday, November 27, 2007

Randomness

I, for one, agree wholeheartedly with Sean's take on randomness. People, in my experience (and according to the data) just don't like randomness one bit. This irrational hatred caused on of the greatest physicists of all time to be on the losing side of a debate (God doesn't play dice, if you'll recall). It has cause untold numbers to lose fortunes to a roll of the dice (or the stock market, they're the same damn thing), and a fortunate few to profit immensely (usually those taking the bets, but that's a small matter). If you're human, odds are you've been fooled by the odds.

The sad thing is how little education and understanding of probability and statistics actually matters. For example, over Thanksgiving I was watching "Let's Make a Deal" with my family. At every turn I was calculating the expectation for money won, which was (until he finally quit) actually less than the deal offered (usually by around 75%, I'm fairly certain they do it mathematically). Now, if their offer is less than the expectation, you should keep playing, over many games it would be the wisest choice. Of course, since you only get one game, whether it's really the best course is debatable. My point here is that when they offered the guy nearly $600,000, I would have taken it, even though his expectation was actually $750,000. Strictly speaking, he played it right, only taking the $400,000 offer after his expectation plummeted to $333,000. But is that really right? If it were a poker hand the answer would be yes, but for a game like "Let's Make a Deal" I don't really know.

My point here is that even when I knew mathematically that they were undervaluing his hand, the money was just too good too pass up, and he was lead on through hubris alone. Most people would, at that level, not be able to take the risk, the potential loss is just too much.

Anyway, if you're interested in this kind of thing, I recommend Chances Are . . .: Adventures in Probability, it's a very entertaining and readable

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