from a review of Taleb's book at amazon...
"Second, we forget the drop outs, and focus on the survivors. Taleb calls this the 'Survivor bias'. If you train a million monkeys to pound on a million typewriters for an infinite amount of time, one of them will write an exact duplicate of a Shakespeare sonnet. Still the 'surviving monkey' who produces a great sonnet has achieved this through pure luck.. The effort is entirely random. We are simply prone to attribute the 'one' monkey's success with skill, just because he was randomly chosen to have the winning lottery ticket.
"In financial markets, a flim-flam stock broker uses the survivor bias to make big bucks. He sends 5000 people a letter saying the market is going up, and 5000 a letter saying it will go down. A month later, the 5000 recipients of the 'correct' letter, get a second letter. Half get the up message, the other half get the down message. A month later, the 2500 recipients of the winning call get a third letter, 1250 up and 1250 down. The 1250 who have now gotten 3 correct calls in a row, receive solicitations and 200 invest in the broker's offshore fund. The flim-flam man disappears with a million dollars.
"Why do the 200 invest? They forget that surviving the test does not imply skill. They are fooled by randomness."
AI
