Statistics Archives

Why You Should Embrace the Randomness of Life

How much of life is random? What can be gained by accepting that randomness? You could understand anything in the world by learning a finite set of rules and patterns that apply to all aspects of life. That’s the premise of The Great Mental Models series of books from Farnham Street (FS), a website dedicated to timeless knowledge and insightful ideas. The Great Mental Models Volume 3 argues that we can benefit by accepting that most of life is random. The benefits include making better decisions, making fewer prediction errors, and enjoying more creativity. Keep reading to learn more about what

How to Look at the Bigger Picture: A Novel Approach

As you go through life, how clearly are you seeing things? Are you seeing them in their true and full context? You’ll stand the best chance of success if you have an accurate view of the world. Unfortunately, because each of us has a limited perspective, sometimes it’s hard to see the big picture—and easy to misinterpret some situations as a result. The Great Mental Models Volume 3 argues that understanding distributions—a model drawn from mathematics—can help us see the big picture more clearly. The basic idea is that, by thinking statistically, you’ll have a clearer context for the things

Fundamental Analysis in Trading: Pros & Cons

What is fundamental analysis in trading? Is it possible to predict the market based solely on what fundamental analysis says? Fundamental analysis predicts what the market will do based solely on what mathematical models say is logical. However, traders’ behavior is far from logical, which is why fundamental analysis alone is not enough to predict what happens in the market. Here’s why you can’t predict the market based on fundamental analysis alone.

What Is the Power Law? Peter Thiel Explains

What is the power law? How should it influence your planning? The power law is an exponential growth pattern that illustrates how power or size is distributed. The principle has particular application for startups and venture capital, and it can inform investing in general. Keep reading to learn about the power law and how it applies to business and investing.

Stephen Hawking: Aliens Are Probably Out There

What did Stephen Hawking say about aliens in his book Brief Answers to the Big Questions? Did Hawking believe in the existence of extraterrestrials? According to famed theoretical physicist Stephen Hawking, aliens most likely exist, but there’s a good chance humanity will never encounter them. This is because Hawking believed that extraterrestrial life is likely unintelligent and lacks the technology to communicate with others. Here’s an in-depth look at Stephen Hawking’s theories about aliens.

Debates Over the Ten-Thousand-Hour Rule

What is the ten-thousand-hour rule? Who first came up with the rule, and what is the research behind it? The ten-thousand-hour rule basically says that you need to practice a skill for at least ten thousand hours before you can be considered an expert. After Malcolm Gladwell published these findings in his book Outliers, there have been a number of criticisms. Here’s why the ten-thousand-hour rule doesn’t hold up.

The Neglect of Probability Bias in Decision-Making

What is the neglect of probability bias? Do you consider the probabilities of possible outcomes when making decisions? Neglect of probability bias is the tendency to disregard probability or risk when making decisions in the face of uncertainty. The most optimal choice is the one that has the highest probability of turning out well, but people tend to opt for the option that will have the biggest positive impact if it occurs, regardless of how likely it is. Here’s why we tend to neglect probability when making decisions.

Sampling Distribution: Explained in Simple Terms

The Millionaire Next Door Formula for Net Worth

What is sampling distribution? What are some of the pitfalls in working with mathematical averages in math? A sampling distribution is one of the complex math concepts many people don’t instinctively understand. The sampling distribution (or the distribution of the average) is important because averages are misleading: Your brain focuses on the average and doesn’t consider possible outliers in the distribution. Keep reading to understand sampling distribution, explained in simple terms.

The Dangers of the Sample Selection Bias

What is self-selection bias? How does self-selection bias influence research findings? Sample selection bias is a common issue in psychological studies that involve statistical analysis. Specifically, people only join studies they’re comfortable responding to, which alters your data. Those who might provide embarrassing or somehow “undesirable” responses simply won’t take part, narrowing your study’s scope and skewing the results. Here’s how sample selection bias skews research results and how to work around it.

False Causality: Correlation Doesn’t Equal Causation

What is false causality? Why do we assume causality where there is none? Humans struggle to interpret cause and effect because they confuse correlation with causation, assuming causality where there is none. For example, if a person gets the flu after they start taking vitamins, they might assume a causal relationship—taking vitamins gave them the flu—simply because the timing coincides. Let’s consider some ways the assumption of causality (where there’s none) impairs logic.