1. A beautiful visual introduction to some concepts in probability and statistics (link)
2. You are not a Monte Carlo Simulation (link)
It is now well-established that humans feel the pain of loss more strongly than the pleasure of an equivalent amount of gain. This interesting quirk may be shelved as an unfortunate cognitive bias (like confirmation bias); something for our rational mind to overcome.
However, one can the follow up question: why? A first level explanation is as follows: Suppose you invest $100. You lose 50% one day, and gain 100% the next day. You are now back to square one ($100 * 0.50 * 2.0 = $100). A gain twice the size of the loss was necessary to stay neutral.
Corey Hoffstein argues remarkably well that for individuals average outcomes are less meaningful than median outcomes. That the logarithmic scale for utility is more appropriate than a linear scale. And that loss aversion - that silly behavioral quirk - might be a powerful survival technique that helps us live to fight another day.
I loved this insightful post. If nothing else, do yourself a favor and read the summary.
Seeing Theory was created by Daniel Kunin while an undergraduate at Brown University. The goal of this website is to make statistics more accessible through interactive visualizations (designed using Mike Bostock’s JavaScript library D3.js).It starts from relatively basic concepts, touches on some intermediate-level topics (Basic Probability, Compound Probability, Probability Distributions, Frequentist Inference, Bayesian Inference, Regression Analysis)
2. You are not a Monte Carlo Simulation (link)
It is now well-established that humans feel the pain of loss more strongly than the pleasure of an equivalent amount of gain. This interesting quirk may be shelved as an unfortunate cognitive bias (like confirmation bias); something for our rational mind to overcome.
However, one can the follow up question: why? A first level explanation is as follows: Suppose you invest $100. You lose 50% one day, and gain 100% the next day. You are now back to square one ($100 * 0.50 * 2.0 = $100). A gain twice the size of the loss was necessary to stay neutral.
Corey Hoffstein argues remarkably well that for individuals average outcomes are less meaningful than median outcomes. That the logarithmic scale for utility is more appropriate than a linear scale. And that loss aversion - that silly behavioral quirk - might be a powerful survival technique that helps us live to fight another day.
I loved this insightful post. If nothing else, do yourself a favor and read the summary.
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