Fun article by Daniel Kahneman based on his new book,Thinking, Fast and Slow.
How cognitive illusions blind us to reason (The Guardian):
Why do Wall Street traders have such faith in their powers of prediction, when their success is largely down to chance? Daniel Kahneman explains.
- “Looking back, the most striking part of the story is that our knowledge of the general rule that we could not predict had no effect on our confidence in individual cases. We were reluctant to infer the particular from the general. Subjective confidence in a judgment is not a reasoned evaluation of the probability that this judgment is correct. Confidence is a feeling, which reflects the coherence of the information and the cognitive ease of processing it. It is wise to take admissions of uncertainty seriously, but declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true.” …
- “The subjective experience of traders is that they are making sensible educated guesses in a situation of great uncertainty. In highly efficient markets, however, educated guesses are no more accurate than blind guesses.”