We’re not always as smart as we think we are. Homo economicus, the always-rational, theoretical economic being, knows it best.
Homo Economicus doesn’t fall prey to the Texas sharpshooter fallacy like we wishful humans do. The term comes from a joke about a Texan who shoots a bunch of bullets into a barn wall, then paints a target where the most bullet holes are after-the-fact, and calls himself a sharpshooter.
The Texas sharpshooter fallacy happens when we zero-in on similarities in data, while conveniently ignoring the differences in data, which can lead us to the wrong conclusions. While science and data-crunching are great, they can lead to biased interpretations at the hands of our monkey-brains, which are always looking for patterns. The Texas sharpshooter fallacy is a problem everywhere, from politics to statistics.
For instance, if you look at a plot of randomly plotted data points, chances are they won’t be nicely spread out. Some areas will have more data points that others. Yet the data is random...there is no pattern of cause, like our brains want to believe there is. The same thing can happen with data that is not random: we make more of some correlations than is actually rational, based on a subset of the data.
To prevent this from happening, it helps to do things like start out with an actual hypothesis, use legit statistical tests and other methods (think: Bayesian), and avoiding p-hacking, a way to make the data lean a certain way while still passing all the statistical tests.
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Finance: What is a Chartist?26 Views
Finance allah shmoop What is a chartist Well here's a
chart and here's a chart and here's a chart All
right Well these are pages from the investing bible of
a chartist A chartist is an investor really a traitor
as they tend to own stocks for a much shorter
period of time than a longer term Really invest or
type person a chartist relies solely on the patterns The
pattern's right there These are all patterns imputed by the
charts that they you know sitting poor threw for hours
and hours So check out this chart see how the
plotted data closely follows the characteristic line there The characteristic
line basically is plodded through all those dots Yes So
they're going to stare at that try to figure out
where that line is going in the future right Get
the crystal ball or all right Well let's look at
this one where the data forms what looks like Well
the head and shoulders of someone who you know doesn't
have a neck that's Just common pattern in trading And
you know if you stopped looking at it and two
thirds of the way through there it's heading down Well
Maybe you'd be short the stock for a few days
and then you see it bottoming and then you'd be
long and try to make money that way Good luck
All right len look at this chart Where is right
here where the data appears to We'll break away from
the established pattern which was all just kind of boring
Lee along down here And then suddenly everything goes up
Yeah start doing its own thing Well maybe the company
reported a good quarter or ah you know the government
cut taxes again Everything went up So these were the
tools of the chartist The chart's a chartist is the
opposite of a fundamental investor meaning that she doesn't know
or care what the company does for a living Really
she doesn't care about their p e ratio nor their
profit margins nor their debt levels on their balance sheet
nor much of anything fundamental about how their business runs
Chartist just care about the pattern they glean from the
charts and all the charts always work until they don't
And what happens when the meteor hits that is that 00:02:06.0 --> [endTime] predictable on a chart Ah
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