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: What is the gumball estimation ...1 Views
And finance Allah shmoop What is the gumball estimation Problem
All right You think it's a trick or black magic
or a grift But it's not oddly this gumball estimation
thing it seems to work in fish tanks everywhere Okay
what is it Well here's a fish tank It's two
feet by three feet by three feet and it's filled
with these gumballs the master fish and that it be
me asks the audience to guess how many balls are
in the tank Yes there are always a few physics
geeks and Willy Wonka workers out there who just no
like you know the physics geeks mumble that well the
tanks twenty four inches by thirty six inches by thirty
six inches around thirty one thousand cubic inches and that
one ball fits into a cubic inch self There should
be like thirty one thousand balls in this thing and
then the Willy Wonka People just kind of know you
know somehow like Mpaluku loving brains But the way more
interesting science see social event is that the masses seemed
to get to the right answer just by guessing like
with doing no math So how does this happen Well
we don't really know actually But some kid blurts out
ten thousand Mr And then the fish host writes that
on the blackboard then some other kid blurts out twenty
thousand onto the blackboard It goes And then another kid
who sounds even older than that Second kids as our
thirty thousand and another says half a million and the
audience laughs and the fish host writes it down But
then a few adults shot out two hundred fifty thousand
eighty thousand one hundred thousand And after twenty or thirty
or so in samples here for guesses the host fish
calls stop and he adds up two total and divides
buy in and gets an average from all those guesses
And here's the weird thing The guesses are uncannily accurate
How can this be Why can this be How does
this actually work Well it seems as if some of
us are pretty good guessers Others of us The optimists
among us perhaps routinely go over in our guesses while
all the Debbie downers out there will always go away
too low in their gases But there's about the same
number of optimists and downers out there so they kind
of coalesce around some middle of the bell curve And
that middle the bell curve seems he crazily accurate In
the end everything evens out And again we're not totally
sure how the averages come out so eerily correct But
try this with your friends Next time you go to
a party or a fish tank thing like we're at
here you know maybe we should all just shrug our
fins and revel in the mystery What do you think
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