Showing posts with label sharpshooter effect. Show all posts
Showing posts with label sharpshooter effect. Show all posts
Tuesday, 15 July 2014
T is for Texas Sharpshooter Effect
The Texas Sharpshooter Effect is a doozy, although it's less of a bias and more a sleight of hand trick. Impressed by that fantastic mutual fund history? Amazed by that stock tipping sheet performance? Dumbfounded by that guru's record of predicting market movements? Roll up, roll up and see the Texan Sharpshooter in action …
Saturday, 25 September 2010
Sharpshooting the Investment Gurus
Hitting a Barn Door
Take a rifle and randomly spray bullets at the side of a barn. Invite some gun-toting friends around to see your handiwork and accept their lavish praise as a dead-eyed sharpshooter, knowing all the while it’s an illusion. The trick is to paint the targets after you’ve made the bullet holes.
This, the Sharpshooter Effect, is essentially how many business gurus and investment analysts make their living. Worse, the effect affects statistical analysis of data that are genuinely important, like clusters of birth defects. The problem is that we’re not very good at distinguishing randomness from order and this causes us no end of grief as we pursue illusory patterns in the belief that we’re being smart.
Take a rifle and randomly spray bullets at the side of a barn. Invite some gun-toting friends around to see your handiwork and accept their lavish praise as a dead-eyed sharpshooter, knowing all the while it’s an illusion. The trick is to paint the targets after you’ve made the bullet holes.
This, the Sharpshooter Effect, is essentially how many business gurus and investment analysts make their living. Worse, the effect affects statistical analysis of data that are genuinely important, like clusters of birth defects. The problem is that we’re not very good at distinguishing randomness from order and this causes us no end of grief as we pursue illusory patterns in the belief that we’re being smart.
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