Tuesday, April 14, 2015

Randomness, Gullibility, and Fraud

On a recent EconTalk episode on randomness, the guest, Campbell Harvey provided an interesting example at the intersection of probability and gullibility. I paraphrase:

Suppose you get an email predicting the winner of a football game. You ignore it, but after the game, you notice that the prediction did come out true.

Probably lucky, you say to yourself.

The next week you get a similar email predicting the winner of another football game. You later find out that that prediction also came true.

This happens for ten weeks in a row.

The emailer correctly predicts the winner in every game.

You sign up for the newsletter!

But what's going on behind the scenes. The emailer spams 100,000 email address; in half of them he predicts Team A is going to win, and in the other half he predicts that Team B is going to win.

One set gets the "correct prediction".

The following week he spams the 50,000 recipients who got the correct prediction. Again, he goes 50-50.

You see where this is going.

After 10 weeks, by pure chance, there will be 100 "suckers" who think you got 10/10.

Don't be a sucker!

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