Fooled by Randomness (33 page)

An interesting problem is the “value at risk” issue where people imagine that they have a way to understand the risk using “complicated mathematics” and running predictions on rare events—thinking that they were able from past data to observe the probability distributions. The most interesting behavioral aspect is that those who advocate it do not seem to have tested their past predicting record, another Meehl type of problem.

Thinkers and philosophers of probability:
Perhaps the most insightful book ever written on the subject remains the great John Maynard Keynes’
Treatise on Probability
(Keynes, 1989, 1920), which surprisingly has not collected dust—somehow everything we seem to discover appears to have been said in it (though, characteristic of Keynes, in a convoluted way). In the usual supplied lists of thinkers of probability, Shackle, who refined subjective probability, is often undeservedly absent (Shackle, 1973). Most authors also omit the relevant contributions of Isaac Levi on subjective probability and its links to belief (Levi, 1970), which should be required reading in that area (it is impenetrable but is worth the exercise). It is a shame because Isaac Levi is a probability
thinker
(as opposed to probability
calculator
). The epistemologist of probability Henry Kyburg (Kyburg, 1983) is also absent (too difficult to read).

One observation about philosophers as compared to scientists is that they do seem to work in a very heterogeneous and compartmented manner: Probability in philosophy is dealt with in different branches: logic, epistemology, rational choice, philosophy of mathematics, philosophy of science. It is surprising to see Nicholas Rescher delivering an insightful presidential address of the American Philosophical Association on the topic of luck (later published as a book called
Luck,
see Rescher, 1995) without discussing much of the problems in the philosophical and cognitive literature on probability.

Problems with my message:
Note that many readers in the technical professions, say engineering, exhibited some difficulty seeing the connection between probability and belief and the importance of skepticism in risk management.

CHAPTER 14

Stoicism:
Modern discussions in Becker (1998) and Banateanu (2001).

POSTSCRIPT

Uncertainty and pleasure:
See Wilson, et. al. (2005) for the effect of randomness on the prolongation of positive hedonic states.

Looks and success:
See (Shahami, et. al., 1993; Hosoda et. al., 1999). My friend Peter Bevelin wrote to me: “When I’m thinking about misjudgment of personalities I am always reminded of Sherlock Holmes in Arthur Conan Doyle’s
The Sign of Four.
“It is of the first importance not to allow your judgment to be biased by personal qualities. I assure you that the most winning woman I ever knew was hanged for poisoning three little children for their insurance-money, and the most repellent man of my acquaintance is a philanthropist who has spent nearly a quarter of a million upon the London poor.”

Maximizing:
Psychology literature has focused on maximizing in terms of choice, not so much in these terms of actual optimization. I go beyond by looking at the activity of optimization in daily life. For a synthesis and review of the hedonic impact of maximizing and why “less is more,” see Schwartz (2003). See also Schwartz, et. al. (2002). For the causal link between unhappiness and the pursuit of material benefits, see Kasser (2002).

Date of your death:
I owe this last point to Gerd Gigerenzer.

Unpredictable behavior:
See Miller (2000) for the discussion of the point in biology. See also Lucas’s (1978) applications to a random monetary policy that thwarts expectations.

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