HOME     SITEMAP     RSS     TWITTER     EMAIL    
Search:   

FollowSteph Follow Steph as he posts Blog Blazer Friday
 

I'm Immortal

Fooled by Randomness

I’m Immortal and I can prove it using valid and correct statistics! It’s pretty simple actually. To prove my immortality, I’m going to use the data from my life.

Here’s how the proof goes. Since the day I was born I’ve never had a day in which I died. Being my age, that’s just under 13,000 days. A fairly decent sample size (I think that with 13,000 flips of a coin we could determine the odds of getting heads or tails). But maybe for those of you who aren’t yet confident, let’s increase the sample size. In all 18,408,206 minutes I’ve lived (give or take a bunch) I’ve never died. Not once!

So based on my past data, the odds of me ever dying are less than 0.00…1%. In other words I’m virtually immortal! How cool is that?

However as we all know this logic is flawed, I will one day die. I’m no more immortal than anyone else. However there is no error in my logic. My sample size is large, quite large (over 18 million data samples with not one instance of me dying). Definitely enough to get a very high level of confidence, statistically speaking that is.

The flaw is that I can’t prove something positively, I can only ever really disprove something. In this case, just because I’ve lived over 18 million minutes without dying, doesn’t mean I’ll live another minute. In other words I can only prove that my theory is false, I can never be sure that my theory is true. I can be more confident, but I can never be sure.

And this is exactly what’s gotten the world in such financial trouble. Statements like “The market never goes down x% in a given month.” or “The US government can’t collapse.”. Our sample size just isn’t big enough. We can never prove this to be true, we can only disprove it. Just like we can’t disprove/prove we’re immortal until we die.

Therefore you have to be careful of what’s being said out there. Remember that rare events do happen, and they happen much more frequently than we think. Several are happening right now. The Feds bringing the interest rates to near 0%. The real estate market collapsing on itself. Deflation looking like it might be a real possibility. The government needing to bailout the corporate world on a never before seen scale. It’s all happening, yet it’s not possible. Another once in a lifetime event is happening again and again and again…

However there is good news. Learning and knowing to appreciate rare events can be an incredible benefit. You should plan for them, because although rare they do happen very frequently (that last sentence sure sounds like something Yogi Berra would say).

If you’re interested in learning more about this, I strongly recommend the books Fooled by Randomness and The Black Swan (the inspiration for this post). Both are amazing books that will really open your mind. And they’re not just about finance, they can be applied to anything in life.

Thank you also Jian for recommending these books.



 
Like this article?

Comments:

  •     Scott Kane
    · December 30th, 2008  · 12:11 pm  · Permalink

    Steph,

    For a moment there I thought you’d either lost it, or gotten started on the New Years mixer drinks a tad early… šŸ˜‰

    Deflation. Funny you should mention this as I was saying this twelve months ago and folks said I was mad. Inflation, yep, they get that. But not deflation, nor why it’s potentially worse.

    Oh well!

    Happy New Year to you and your family! šŸ™‚

  •     Steph
    · December 31st, 2008  · 2:16 am  · Permalink

    Hi Scott,

    I figured it was a good time of year to use such an intro šŸ˜‰

    I absolutely agree with you on deflation. I myself have been talking about the real estate crash since 2005 and people thought I was crazy then.

    My newest comment that I get called crazy for is believing that the government won’t be able to honor it’s social security commitments, especially for old age! There’s just too many baby boomers and not enough money to cover the costs. Of course it will be too late by the time anyone decides to act.

    Which also brings up another point. If a government can’t meet it’s financial commitments/obligations, does that mean it’s in default/bankruptcy? I know that if I can’t meet my payments I’m considered bankrupt. But some governments have the option of cancelling their commitments with no issues. Must be nice…

    Happy New Year to you and your family as well! šŸ™‚

  •     Andy Brice
    · December 31st, 2008  · 10:19 am  · Permalink

    There was a story that they used mathematical models to calculated the biggest wave they would see in 30 years to help design a new oil rig. They saw several that big in the first month. Oops.

  •     Steph
    · December 31st, 2008  · 2:27 pm  · Permalink

    Hi Andy,

    Amazing isn’t it!

    We still fall prey to this. I can’t remember the exact details, but in psychology there’s a test you can do where you have to estimate an answer within a range where it’s 99% correct. So for example how many kilometer/miles is it to drive from LA to New York. So you could say 1-1,000,000 miles and be 99% correct. But most people say something like 1000-2000 or something like that. And after taking the test, of the 10 or so questions, most people got 50% wrong! With ranges that were suppose to be 99% correct.

    You also see this effect when people gather metrics. A lot of times people will remove the extremes from their datasets to balance it out. Bad move! They’re there for a reason šŸ˜‰

  •     FollowSteph.com ā€“ Iā€™m Immortal « Mr Williams Maths Blog
    · February 14th, 2010  · 2:26 pm  · Permalink

    […] FollowSteph.com ā€“ Iā€™m Immortal. […]

Write a reply:





 
FollowSteph RSS
FOLLOWSTEPH'S
RSS FEED!


SOFTWARE AND BOOKS BY STEPHANE GRENIER:

LandlordMax Property Management Software

LandlordMax is the EASIEST
Property Management
Software available!
Try it for free!

Real Estate Pigeon

Real Estate Pigeon
The place to ask and answer
all your real estate questions

Blog Blazers: 40 Top Bloggers Share Their Secrets to Creating a High-Profile, High-Traffic, and High-Profit Blog!

Blog Blazers is a book that
features secrets from the
Top 40 Bloggers on the web

How to Generate Traffic to Your Website ebook

How to Generate Traffic to
Your Website
is an ebook for
to you achieve success


 

FollowSteph
More resources from Stephane Grenier:
PUBLICATIONS
For people who work on the web
Blog Blazers
How to Generate Traffic to Your Website
 
SOFTWARE
The EASIEST Property Management Software available!
LandlordMax


Copyright @2003-2013
LandlordMax Property Management Software

Disclaimer: This is a personal blog about my thoughts, experiences and ideas. The contents of this blog are for informational purposes only. No content should be construed as financial, business, personal, or any other type of advice. Commenters, advertisers and linked sites are entirely responsible for their own content and do not represent the views of myself. All decisions involve risks and results are not guaranteed. Always do your own research, due diligence, and consult your own professional advisors before making any decision. This blog (including myself) assumes no liability with regard to results based on use of information from this blog. If this blog contains any errors, misrepresentations, or omissions, please contact me or leave a comment to have the content corrected.