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Technologos comments on Fundamentally Flawed, or Fast and Frugal? - Less Wrong
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The "recognition heuristic" tends to work surprisingly well for stock picking, or so I've heard.
Find a bunch of "ordinary" people who have no special knowledge of stock picking, give them a list of companies, and ask them to say which ones they've heard of. Stocks of companies people have heard of tend to do better than stocks that people haven't heard of.
My guess is that this would stop working if you did it with people who do have special stock related knowledge. The recognition heuristic is most effective when you've heard of comparatively few things. For instance, on the "which city is bigger" test, Germans were shown to do better for American cities than Americans did, and vice-versa, because Americans are more likely than Germans to have heard of small American cities and vice-versa.
Note also that "tend to do better than" does not mean "tend to outperform the market as a whole," an important point.
for any well-defined sense of "tend to do better than" it has to, otherwise it isn't tending to do better.
(since any stock someone has heard of is "tending to do better than" the set of stocks people haven't heard of)
Unless the statement was intended to be "stocks of companies people have heard of tend to do better than stocks of SIMILAR COMPANIES people haven't heard of."
Indeed.
You're right. It works better if the group interviewed is composed of neither experts nor completely isolated news-averse schizoids.