Monday, October 30, 2006
A short story
"This story concerns the publisher of a stock newsletter who sends out 64,000 letters extolling his state-of-the-art database, his inside contacts, and his sophisticated econometric models. In 32,000 of these letters he predicts a rise in some stock index for the following week, say, and in 32,000 of them he predicts a decline. Whatever happens, he sends a follow-up letter but only to those 32,000 to whom he's made a correct "prediction." To 16,000 of them he predicts a rise for the next week, and to 16,000 a decline. Again, whatever happens, he will have sent 2 consecutive correct predictions to 16,000 people. Iterating this procedure of focusing exclusively on the winnowed list of people who have received only correct predictions, he can create the illusion in them that he knows what he's talking about. After all, the 1,000 or so remaining people who have received 6 straight correct predictions (by coincidence) have a good reason to cough up the $1,000 the newsletter publisher requests: They want to continue to receive these "oracular" pronouncements."