Alicorn comments on Fundamentally Flawed, or Fast and Frugal? - Less Wrong

41 Post author: Kaj_Sotala 20 December 2009 03:10PM

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Comment author: CronoDAS 20 December 2009 09:02:29PM 1 point [-]

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.

Comment author: Alicorn 20 December 2009 09:24:11PM 4 points [-]

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.