Fooled by randomness
- a form of meditation rather than the computation
- not too much focus on the elegance or quality of the method so long it takes you to the result
Two ways of learning history:
- Play with the past: Reading lesson from the elders
- Play with the future: Monto Carlo simulation
- Do NOT confuse between probability and expectation (probability x payoff). Remember table 6.1 in the book to have the viz of the concept
Important statement (page 130)
If the science of statistics can benefit me in anything, I will use it. If it poses a threat, then I will not.
I want to take the best of what the past can give me without its dangers.
Accordingly, I will use statistics and inductive methods to make aggressive bets,
but I will not use them to manage my risks and exposure.
Successful trader: Ensure the costs of being wrong are limited and their probability is not derived from past data.
2 important factors to consider when making any assessment:
- The degree of randomness
- The size of the sample