You often see in the papers things saying events we just saw should happen every ten thousand years, hundred thousand years, ten billion years. Some faculty here in this university had an event and said that a 10-sigma event should happen every, I don't know how many billion years. Do you ever regard how worrisome it is, when someone makes a statement like that, "it should happen every ten thousand years," particularly when the person is not even two thousand years old?
So the fundamental problem of small probabilities is that rare events don't show in samples, because they are rare. So when someone makes a statement that this in the financial markets should happen every ten thousand years, visibly they are not making a statement based on empirical evidence, or computation of the odds, but based on what? On some model, some theory.
they are not making a statement based on empirical evidence, or computation of the odds, but based on what? On some model, some theory.
What's the difference between "based on computation of the odds" and "based on some model"?
Another month has passed and here is a new rationality quotes thread. The usual rules are: