Replies to post #128872 on Biotech Values

[TastyTheElf]

This is incorrect and is the source error that almost everyone makes - that Test False Positive+ Test True Positive=1

I agree with this, but in your example, the statement "the incidence of disease is 1% generally in the population" is not the same as "a patient referred for a diagnostic test has the chance of having the disease in question equivalent to the general incidence rate in the population".

If your contention in the example were true, then almost no one would ever believe a diagnosis of serious disease, because the chance of someone having, for example, Lyme disease as a percentage of the general population will always be lower than the chance of a false positive under that test.

However, if the person has been bitten by a tick and has certain symptoms, and the test comes back positive, the chances of that person having Lyme are really high. Because the chances of that person having Lyme prior to the test were way higher than the general average.

Your "fallacy" is dependent on the proper assumptions. It doesn't invalidate your point, which is obviously important, but it does qualify it.

Regards,
TGW

[DewDiligence]

MDs don’t understand base-rate fallacy (but we already knew that):

#msg-104101612

[DewDiligence]

[Partly-on-topic]—City Sports, a chain of sports-apparel stores, has gone bankrupt and is liquidating all of its merchandise. Although the store routinely had discounts of 15-20% (plus an additional 5% in quarterly rebates for furnishing your email address), the store in my neighborhood was never crowded.

Yesterday, however, during the first day of the GOING OUT OF BUSINESS SALE, where all items were discounted a mere 10% (with no email rebate), the store in my neighborhood was jammed to the gills.

This seems like yet another instance of human brains being hard-wired to do illogical things. Examples of such behavior that are more directly tied to biotech investing have been discussed on this board under such monikers as base-rate fallacy and program-survival bias—e.g. #msg-68164207, #msg-68170440, #msg-68163164, #msg-104101612.