Jamie cashed out big from playing crypto-roulette. She was bragging to all of her friends about how she bought low and sold high, making solid earnings off of cryptocurrency spread. Joe wanted in the game, so he bought the same kind of crypto Jamie did...except, it turns out, he bought the cryptocurrency when it was high, not low. Now, Joe is sad.
Why did Joe just buy the crypto? Outcome bias. Joe looked at what the outcome was for Jamie, and figured he could get the same outcome...but without looking at how and why Jamie had a good outcome (his critical mistake). If Joe had talked to Jamie, he would have learned that she heavily researched multiple currencies and the current market. Joe should have learned how and why Jamie got the results she did, focusing on her decisions and actions rather than her outcome.
Outcome bias happens to the best of us, when we are focusing more on the outcome of past events than the how-and-why of those past events, in making current decisions. Deciding to jump into a new, hot market without actually learning about what’s happening and why is oftentimes because of outcome bias. Casinos take advantage of outcome bias, with gamblers using anecdotes to inform their decisions over actual statistics (yes, the casinos always win in the aggregate, or else they wouldn’t be in business).
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Finance: When Can the Data Do You Wrong?20 Views
Finance a la shmoop.. when can the data do you wrong? At least leave you and do
beliefs you probably shouldn't have okay so you know the term caveat emptor
or buyer beware right well the same applies to advice givers [Man approaches woman at psychiatric help stall]
or rather advice give-ees... so here's our little story there's this football
stadium it pulled 65,536 people exactly it's filled the announcer comes on tells
the very cooperative crowd to all stand and take out a quarter from their [Woman announcers addresses football crowd]
pockets magically every attendee has one the announcer she then says alright flip
the coin and despite a few jingles of missed coins...
...alright well everyone flips the
announcer says okay, if you flipped a tails sit down.. there are now 32768 people standing and she says okay
flip again and then a few jingles yeah like if you can't catch your own coin [Persons coins fall to the floor]
should you really even be at a game that's all about catching things anyway
half the people sit she has him do it again 16,384 people are left and again
8,192 people are left and again and again and again and again and again
again again again.... until there were just two people left
standing she says flip again and they do and one gets another head the other gets [Person flips coin on heads]
tail so only Bob is left here Bob the accountant from Reseda, he flipped a head
on his quarter it was a legal quarter sixteen times in a row that fact will [Bobs gravestone appears]
probably be on his tombstone and everyone will be impressed for all
eternity so what is Bob do - well Bob writes books on how to flip heads
he gives lectures he has his own website how to flip heads.com and Chapter four
is on you know on angling the thumb, chapter six is on all the humidity
levels, chapter eight is on what happens if you drop the coin you know Bob we're
looking at you the reality is in real life people would actually listen to him [Man talking in football stadium]
he would sell lots and lots of books when flipping a head be sure you've
thoroughly washed your hands and I recommend propel you know that sticky
stuff and don't forget to let your fingernails grow out a little bit Bob
yes Bob this guy formerly this guy is now the expert on how [Bob with two women]
flip a head point here when you take advice about patterns particularly from
Wall Street commissioning kind of people be sure you know why and how it's being
given and what your in theory paying them for that loving advice where did
the data come from and how did the giver become the expert and was this
real expertness or just odds and luck and everything at work do they
really know what they're talking about or you know where they just Bob the
lucky flipper [Bob dancing with two women in a club]
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