The Signal and the Noise
Page 61
margin of error, 176, 178, 181, 213, 252, 452
in economic forecasts, 183, 184
in political polls, 62, 65, 176, 252, 452
Markakis, Nick, 90
“Market for Lemons, The” (Akerlof), 35
MARL, 264
Marshall Islands, 509
Martinez, Edgar, 82, 83
Marx, Karl, 53
Massa, Eric, 72
Massachusetts, 391
Mathematics of Poker, The (Chen and Ankenman), 323
Mathews, F. David, 206
Mathis, Catherine, 25, 462
matrices, in weather forecasting, 114–18
Mauna Loa Observatory, 375, 401
Maunder Minimum, 392
Mayfield, Max, 109, 110, 138–41
measles, 214, 223–24, 225
Mechanical Turk, 262–64, 263, 265, 281, 282
media bias, 60
medical diagnoses, 448
meditation, 328
Medvedev, Dmitri, 48
Memphis, Tenn., 396
Mercury, 374
Merrill Lynch, 353
metacognition, 273
methane, 374, 375
Met Office (UK), 394, 408
Mexico, 210, 215–16
Mexico City, 144
middle class, 189
Middle East, 398
Midway Islands, 413
Milledge, Lastings, 89
Millikan, Arikia, 334
mind blindness, 419
minor league system, 92–93
Mississippi, 109, 123–24
MIT, 384
MMR shots, 224
modeling for insights, 229
models:
agent-based, 226, 227–29, 230
bugs in, 285–86
of CDO defaults, 13, 22, 26, 27, 29, 42, 45
for chess, 267
of climate system, 371, 380, 384–85, 401–6, 402
crudeness of, 7
of elections, 15
foxlike approach of, 68
FRED, 226
fundamentals-based, 68
language as, 230
naïve trust in, 11
overfitting in, 163–71, 166, 168–71, 185, 191, 452n, 478
for predicting earthquakes, 158–61, 167
regression, 100
signal vs. noise in, 388–89
SIR, 220–21, 221, 223, 225, 389
thought experiments as, 488
use and abuse of, 230
as useful even in failure, 230–31
for weather forecasting, 114–18, 119, 120, 121, 122, 123–25, 225, 226, 388
Model T, 212
Mojave Desert, 159–60
Molina, Yadier, 101
moment magnitude scale, 142n
momentum trading, 344–45, 345, 368
Moneyball (Lewis), 9, 10, 77, 86, 87, 92, 93–94, 95, 99, 101, 105, 107, 314, 446
Moneymaker, Chris, 294–95, 296, 327
Mongols, 145n
Monroe Doctrine, 419
Moody’s, 19, 24–25, 43, 44, 45, 463
Morgan, Joe, 102
Morris, Dick, 55, 56, 61
mortgage-backed securities, 462
home sales vs., 34–35, 35, 39, 42, 43
nonlinearity of, 119
ratings of, 19, 20, 24, 68
shorting of, 355
mortgages, 24
defaults on, 27–29, 184
subprime, 27, 33, 464
Mount Pinatubo, 392, 399–400
Moussaoui, Zacarias, 422, 444
MRSA, 227, 228
MSM, 222, 222, 487
MSNBC, 51n
Müller-Lyer illusion, 366, 367
multiplier effect, 42
mumps, 224
Murphy, Allan, 129
Murphy, Donald, 89
mutual funds, 339–40, 340, 356, 363–64, 498
Nadal, Rafael, 331, 357-58, 496
Naehring, Tim, 77
Nagasaki, Japan, 432
Nagin, Ray, 110, 140–41
Napoleon I, Emperor of France, 262
NASA, 174–75, 370, 379, 393–95
NASDAQ, 346, 346, 348, 365
Nash, John, 419
National Academy of Sciences, 384
National Basketball Association (NBA), 92, 234–40, 255n
National Center for Atmospheric Research (NCAR), 110, 111, 118
National Collegiate Athletic Association (NCAA), 451n
national debt, 189, 509
National Economic Council, 37
National Football League (NFL), 92, 185–86, 336, 480
National Hurricane Center, 108, 109–10, 126, 138–41
National Institute of Nuclear Physics, 143
National Journal, 57–58
National League, 79
National Oceanic and Atmospheric Administration (NOAA), 122, 393–95
National Park Service, 267
National Science Foundation, 473
National Weather Service (NWS), 21, 122–23, 125, 126, 127–28, 131, 135, 139, 178–79, 393–94
NATO, 428–29, 429, 430–31, 431, 437, 438, 439
Nature, 13, 254, 409
Nauru, 372
nearest neighbor analysis, 85
negative feedback, 38, 39
neighborhoods, 224–25, 226–27, 230
Netherlands, 31, 210
New Jersey, 391
New Madrid Fault, 154
New Orleans, La., 108–9, 138, 139–40, 387, 388
Newsweek, 399
Newton, Isaac, 112, 114, 118, 241, 249, 448
New York, N.Y., 219n, 391, 391, 396, 432, 474, 514
New Yorker, 103
New York Knicks, 119
New York Stock Exchange, 329, 363, 370
New York Times, 146, 205–6, 276, 281, 356, 433, 484
New York Yankees, 74
New Zealand, 210
9/11 Commission, 444, 445
9/11 Commission Report, 423
Ninety-Five Theses (Luther), 4
Ningirsu, 112
nitrous oxide, 375
Nixon, Richard, 400
No Free Lunch, 361–62
noise, 63, 250
in batting averages, 339
in climatology, 371–73
definitions of, 416
in financial markets, 362–64
increase in, 13
in predictive models, 388–89
signals vs., 8, 13, 17, 60, 81, 133, 145, 154, 162, 163, 173, 185, 196, 285–86, 295, 327, 340, 371–73, 388–89, 390–91, 404, 448, 451, 453
in stock market, 368
“Noise” (Black), 362
no-limit hold ’em, 300–308, 309–11, 315–16, 316, 318, 324n, 495
nonlinear systems, 29, 118–19, 120, 376–77
Nordhaus, William, 398
North American Aerospace Defense Command (NORAD), 423
Norway, 31
NRSROs, see ratings agencies
Nuclear Cities Initiative, 512
nuclear weapons, 434, 436, 438
see also weapons of mass destruction
null hypothesis, 260
see also statistical significance test
Nunn, Sam, 434
Oakland Athletics, 87, 92, 99–100, 106, 471
Obama, Barack, 40, 49, 55, 59, 252, 358, 379, 444, 468, 473
obesity, 372, 373
objective truth, 14
objectivity, 14, 64, 72–73, 100, 252, 253, 255, 258-59, 288, 313, 403, 453
observer effect, 188, 472
Occam’s razor, 389
Odean, Terrance, 359
Oklahoma City bombing, 425, 427
Okun’s law, 189
Omaha, Nebr., 396
O’Meara, Christopher, 36
Omori’s Law, 477
On-base percentage (OBP), 95, 106, 314, 471
O’Neal, Shaquille, 233–34, 235, 236, 237
options traders, 364
order, complexity and, 173
outliers, 65, 425–28, 452
out of sample, 43–44, 420
Overcoming Bias (blog), 201
overconfidence, 179–83, 191, 203, 323–24, 386, 443, 454
in stock market trading, 359–60, 367
overeating, 503
overfitting, 163–68, 166, 191, 452n, 478
earthquake predictions and, 168–71, 185
over-under line, 239–40, 257, 286
ozone, 374
Ozonoff, Alex, 218–19, 223, 231, 483
Pacific countries, 379
Pacific Ocean, 419
Pacific Poker, 296–97
Page, Clarence, 48, 467
PageRank, 291
Pakistan, 434–35
Palin, Sarah, 59
Palm, 361, 362
panics, financial, 38, 195
Papua New Guinea, 228
Pareto principle, 312–13, 314, 315, 316n, 317, 496
Paris, 2
Parkfield, Calif., 158–59, 174
partisanship, 13, 56, 57, 58, 60, 64, 92, 130, 200, 378, 411, 452
Party Poker, 296, 319
patents, 7–8, 8, 411, 411n, 460, 514
pattern detection, 12, 281, 292
Pearl Harbor, 10, 412–13, 414, 415–17, 419–20, 423, 426, 444, 510
Pearl Harbor: Warning and Decisions (Wohlstetter), 415, 416, 418, 419–20
PECOTA, 9, 74–75, 78, 83, 84, 85–86
scouts vs., 88–90, 90, 91, 102, 105, 106–7
Pecota, Bill, 88
Pedroia, Dustin, 74–77, 85, 89, 97, 101–5
penicillin, 119
pensions, 24, 27, 34, 356, 463
P/E (price-to-earnings) ratio, 348, 349, 350–51, 354, 365, 369, 500
Perry, Rick, 59, 217
persistence, 131, 132, 132
personal income, 481
Peru, 210
Petit, Yusemiro, 89
Petty, William, 212
pharmaceuticals, 411
Philadelphia Phillies, 286
Pielke, Roger, Jr., 177n
pigs, 209
Pippen, Scottie, 235, 236
pitchers, 88, 90, 92
Pitch f/x, 100–101, 106–7
Pittsburgh, Pa., 207–8, 228, 230
Pittsburgh, University of, 225–26
plate discipline, 96
Plato, 2
pneumonia, 205
Poe, Edgar Allan, 262–64, 282, 289
Poggio, Tomaso, 12, 231
point spread, 239
poker, 10, 16, 59–60, 63, 66, 256, 284, 294–328, 343, 362, 494–95
Bayesian reasoning in, 299, 301, 304, 306, 307, 322–23
boom in, 294, 296, 314–15, 319, 323
competition in, 313
computer’s playing of, 324
fish in, 312, 316, 317–19
inexperience of mid-2000s players in, 315
limit hold ’em, 311, 322, 322
luck vs. skill in, 321–23
no-limit hold ’em, 300–308, 309–11, 315–16, 316, 318, 324n, 495
online, 296–97, 310
plausible win rates in, 323
predictions in, 297–99, 311–15
random play in, 310
results in, 327
river in, 306, 307, 494
signal and noise in, 295
suckers in, 56, 237, 240, 317–18, 320
Texas hold ’em, 298–302
volatility of, 320, 322, 328
PokerKingBlog.com, 318
PokerStars, 296, 320
Poland, 52
Polgar, Susan, 281
polio vaccine, 206
political partisanship, see partisanship
political polls, see polls
politics, political science, 11, 14–15, 16, 53, 426
failures of predictions on, 11, 14–15, 47–50, 49, 53, 55–59, 64, 67–68, 157, 162, 183, 249, 314
small amount of data in, 80
polls, 61–63, 62, 68, 70, 426
biases in, 252–53
frequentist approach to, 252
individual vs. consensus, 335
margin of error in, 62, 65, 176, 252, 452
outlier, 65
prediction interval in, 183n
Popper, Karl, 14, 15
Population Bomb, The (Ehrlich and Ehrlich), 212–13
pork, 210
Portland Trail Blazers, 234, 235–37, 489
positive feedback, 38, 39, 368
posterior possibility, 244
power-law distribution, 368n, 427, 429–31, 432, 437, 438, 441, 442
precision, accuracy vs., 46, 46, 225
predestination, 112
Predicting the Unpredictable: The Tumultuous Science of Earthquake Prediction (Hough), 157
prediction, 1, 16
computers and, 292
consensus, 66–67, 331–32, 335–36
definition of, 452n
Enlightenment debates about, 112
in era of big data, 9, 10, 197, 250
fatalism and, 5
feedback on, 183
forecasting vs., 5, 149
by foxes, see foxes
of future returns of stocks, 330–31, 332–33
of global warming, 373–76, 393, 397–99, 401–6, 402, 507
in Google searches, 290–91
by hedgehogs, see hedgehogs
human ingenuity and, 292
of Hurricane Katrina, 108–10, 140–41, 388
as hypothesis-testing, 266–67
by IPCC, 373–76, 389, 393, 397–99, 397, 399, 401, 507
in Julius Caesar, 5
lack of demand for accuracy in, 202, 203
long-term progress vs. short-term regress and, 8, 12
Pareto principle of, 312–13, 314
perception and, 453–54, 453
in poker, 297–99, 311–15
probability and, 243
quantifying uncertainty of, 73
results-oriented thinking and, 326–28
scientific progress and, 243
self-canceling, 219–20, 228
self-fulfilling, 216–19, 353
as solutions to problems, 14–16
as thought experiments, 488
as type of information-processing, 266
of weather, see weather forecasting
prediction, failures of:
in baseball, 75, 101–5
of CDO defaults, 20–21, 22
context ignored in, 43
of earthquakes, 7, 11, 143, 147–49, 158–61, 168–71, 174, 249, 346, 389
in economics, 11, 14, 40–42, 41, 45, 53, 162, 179–84, 182, 198, 200–201, 249, 388, 477, 479
financial crisis as, 11, 16, 20, 30–36, 39–42
of floods, 177–79
of flu, 209–31
of global cooling, 399–400
housing bubble as, 22–23, 24, 25–26, 28–29, 32–33, 42, 45
overconfidence and, 179–83, 191, 203, 368, 443
overfitting and, 185
on politics, 11, 14–15, 47–50, 49, 53, 55–59, 64, 67–68, 157, 162, 183, 249, 314
as rational, 197–99, 200
recessions, 11
September 11, 11
in stock market, 337–38, 342, 343–46, 359, 364–66
suicide bombings and, 424
by television pundits, 11, 47–50, 49, 55
Tetlock’s study of, 11, 51, 52–53, 56–57, 64, 157, 183, 443, 452
of weather, 21–22, 114–18
prediction interval, 181-183, 193
see also margin of error
prediction markets, 201–3, 332–33
press, free, 5–6
Price, Richard, 241–42, 490
price discovery, 497
Price Is Right, 362
Principles of Forecasting (Armstrong), 380
printing press, 1–4, 6, 13, 17, 250, 447
prior probability, 244, 245, 246, 252, 255, 258–59, 260, 403, 406–7, 433n, 444, 451, 490, 497
probability, 15, 61–64, 63, 180, 180, 181
calibration a
nd, 134–36, 135, 136, 474
conditional, 240, 300; see also Bayes’s theorem
frequentism, 252
and orbit of planets, 243
in poker, 289, 291, 297, 302–4, 302, 306, 307, 322–23
posterior, 244
predictions and, 243
prior, 244, 245, 246, 252, 255, 258–59, 260, 403, 406–7, 433n, 444, 451, 490, 498
rationality and, 242
as waypoint between ignorance and knowledge, 243
weather forecasts and, 195
probability distribution, of GDP growth, 201
probability theory, 113n
productivity paradox, 7–8
“Programming a Computer for Playing Chess” (Shannon), 265–66
progress, forecasting and, 1, 4, 5, 7, 112, 243, 406, 410–11, 447
prospect theory, 64
Protestant Reformation, 4
Protestant work ethic, 5
Protestants, worldliness of, 5
psychology, 183
Public Opinion Quarterly, 334
PURPLE, 413
qualitative information, 100
quantitative information, 72–73, 100
Quantum Fund, 356
quantum mechanics, 113–14
Quebec, 52
R0 (basic reproduction number), 214–15, 215, 224, 225, 486
radar, 413
radon, 143, 145
rain, 134–37, 473, 474
RAND database, 511
random walks, 341
Rapoport, David C., 428
Rasskin-Gutman, Diego, 269
ratings agencies, 463
CDOs misrated by, 20–21, 21, 22, 26–30, 36, 42, 43, 45
housing bubble missed by, 22–23, 24, 25–26, 28–29, 42, 45, 327
models of, 13, 22, 26, 27, 29, 42, 45, 68
profits of, 24–25
see also specific agencies
rationality, 183–84
biases as, 197–99, 200
of markets, 356–57
as probabilistic, 242
Reagan, Ronald, 50, 68, 160, 433, 466
RealClimate.org, 390, 409
real disposable income per capita, 67
recessions, 42
double dip, 196
failed predictions of, 177, 187, 194
in Great Moderation, 190
inflation-driven, 191
of 1990, 187, 191
since World War II, 185
of 2000-1, 187, 191
of 2007-9, see Great Recession
rec.sport.baseball, 78
Red Cross, 158
Red River of the North, 177–79
regression analysis, 100, 401, 402, 498, 508
regulation, 13, 369
Reinhart, Carmen, 39–40, 43
religion, 13
Industrial Revolution and, 6
religious extremism, 428
religious wars of sixteenth and seventeenth centuries, 2, 6
Remote Sensing Systems, 394
Reno, Nev., 156–57, 157, 477
reserve clause, 471
resolution, as measure of forecasts, 474
results-oriented thinking, 326–28
revising predictions, see Bayesian reasoning
Ricciardi, J. P., 87
Rice, Condoleezza, 422, 425