Sunday, May 19, 2019

Predicting the future is hard. There are three mistakes that are very easy to make when trying to make predictions. First, is overly aggressive rounding. Second, is considering too few hypotheses. Finally, mistaking developing a hypothesis for testing a hypothesis.

Overly Aggressive Rounding

People are comfortable when an event is not going to happen 0% or going to happen 100%. People understand, but are not happy with, an event that is 50%. When people don't
think about it too much the default is to round to 0,100, or 50%. As an example, every year, before the state of the football season, the local sports talk radio tries to predict the Patriots final season record. It goes something like this. Le's say they are going to play 10 "bad" teams and 6 "good" teams. They assign a win for each bad team and they figure 3 and 3 for the good teams, for a final record of 13 and 3. A very good record. The bad teams sometimes win and everyone is shocked! In reality the bad teams have a better than 0% chase to win. Let's say it's 20% So a better estimate of the record would be 10*80% + 6*50% = 8+3=11 wins and 5 losses. In the case of games, who cares**?But this same faulty logic is applied in other more important real world cases.

*There are more than that, but these are the ones I see in the wild most often.
** People who bet money.

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