Today I shall be at the Epsom Derby trying to pick a winner on incomplete information. I shall probably go for Tajaaweed as he’s around ten to one and appears to have a better chance than that of winning.
Predicting the outcome of events that you know little about is a bit of a mug’s game. Yet we do it every day with risk assessments, and amazingly, we even place numbers on our decisions. Some people rely of inside knowledge. Others look to statistics. But everything in life is a mixture of chance and consequence.
I was reminded of this earlier this week when I was reading an interesting interview in The Sunday Times with Nassim Nicholas Talib, author of “The Black Swan: The Impact of the Highly Improbable”. He posed the question:
“You toss a coin 40 times and it comes up heads every time. What is the chance of it coming up heads the 41st time?”
Every statistician will immediately shout 50%. That’s the way they’re trained to think. But as Nassim rightly points out, you must be a sucker to believe that. The chances of a coin coming up heads-up forty times are vanishingly small. Clearly the coin is loaded.