Some Statistics Geek Reading

I sometimes have my troubles with statistical probability.  This post at MacroBusiness (h/t nc links) delves into some of that:

 Leonard Mlodinow’s terrific book The Drunkard’s Walk is an historical narrative on the philosophy of randomness and probability intertwined with modern statistical anecdotes. If the inner nerd in you enjoys a little mathematical philosophy like mine does it is definitely be worth the read.

The anecdotes in the book provide lessons on the cautious interpretation of statistics which are as relevant today as ever. This is especially the case given that econometrics, the statistical other half of economics, is often used in practice simply as an ‘economic trick’. In fact, I have my own criticisms of Mlodinow’s interpretation of the experimental outcomes that show people are poor at intuiting probability (which I cover below).

The final two chapters are by far the most interesting, covering human propensity to see patterns where there are none (including confirmation bias and the need to perceive control), how experts are routinely fooled by randomness, how success is often chance rather than the result of hard work, and how the butterfly effect was accidently discovered by Edward Lorenz in the 1960s (a random event itself).

An important lesson is found in Mlodinow’s analysis of the chances of a single fund manager’s success at beating the market for 15 consecutive years.  It was simple down to chance.

He goes on to give some details about the fund performance of Legg Mason's Bill Miller.  Calculating such probabilities always throws me off, but if you are a statistics and probability geek, you might enjoy the whole post.  The book sounds interesting, I better track it down.