Monday, 14 February 2011

The Weather Isn't Getting Weirder

I have to say I told you so...

http://online.wsj.com/article/SB10001424052748704422204576130300992126630.html

The hot hand fallacy once again.

People like to believe in streaks for what are in effect random events. This can be basket ballers making several hoops in a row or bad weather patterns.

The simple explanation is that random means unpredictable. We can expect to see unusual events.

Working in a casino in the past, I once saw 9 0's in a row. People stood and watched. The casino panicked. People left their money right to the end, they saw an endless stream of zeros.

The casino did not need to worry. Of those on the table, not a one moved their money off the zero and none started until the 6th zero had appear. One person seemed to make an incredible amount of money, but the bet it all again. The let it ride in a 0-bubble.

The casino was ok, not a single person won. In fact, that table made record profits.

Yes, people believe in the hot hand effect. It is a fallacy and does not occur, it is simple to disprove using statistics and math, but then it is simple to remember selected data and forget the long term overall data.

So, weather, the market... Random is just random.

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