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Ludic Fallacy
- ak39 6y agoInteresting. I see the examples don’t cite “technical analysis” of price action of stocks. Is that also an example of Ludic fallacy?
- gcc_programmer 6y agoIf the person went bust, it is. If he didn't, it's not.
- cjfd 6y agoThe ludic fallacy could apply here as well. If you calculate that on average you will make a profit but in actuality this profit fluctuates so wildly that you will almost certainly go bankrupt in the process the ludic fallacy could apply. Another criticism by Nassim Taleb to this field is the use of the normal distribution to distributions that are not normal at all. This could lead to the problem that I described in the previous paragraph.
- Ambol 6y agoAlso the fact that many market players got bailed out by governments when things went south. They may have been aware that this would happen all along, which would mean the explicit market game and the real market game are 2 very different things with very different rules.
- sgt101 6y agoYes and no - mostly the market is a game, like foxes and rabbits where the "rabbits" are forced into behaviours that the foxes can exploit. The dominant strategy for the rabbits is created by policy and regulation and also business success - all that money has to go somewhere. The foxes know that Mr. Rabbit will come back from the veg garden at 6pm and so wait at the hole. All is well as the rabbits grow in number, fatten and prosper, and so do the foxes. So in this situation its all games and you can get rich if you play well. Good examples are carry trades and insurance market punts - people know that the central bank of Japan has to do X, they know that people are getting old in the developed world... betting on this happening is mostly a clever thing to do. Every so often at random along comes an event that throws all this into the air - this might be something massive or something small but when it happens people go bust. For example, well look around. There is a lot of talk that "oh we will know when we are in trouble and we will just change strategy" but sometimes that just proves not to be so. The point is that getting to play the game well for long enough to prosper is just luck, getting out at the right time is just luck. You can be stupid and get taken to the cleaners at any time, and you can play well and just be "the fat rabbit" at any time as well. So, be lucky and play well.
- sudhirj 6y agoThe nicest example of this I've seen is that Tim Ferris won a kickboxing championship without being a kickboxer, https://www.martialdevelopment.com/how-to-win-kickboxing-wrong/ https://www.martialdevelopment.com/how-to-win-kickboxing-wro... The fallacy is that winning a world championship at kickboxing must mean that you're an excellent kickboxer, but nope.
- FeepingCreature 6y agoIstm he was an excellent kickboxer to exactly the extent the world championship was one of kickboxing.
- pmoriarty 6y agoThis reminds me of Derren Brown (a magician) winning simultaneous chess games against grandmasters... https://www.youtube.com/watch?v=rIAXIubSTkc https://www.youtube.com/watch?v=rIAXIubSTkc
- thom 6y agoAs in, he got another kickboxer to pretend to be him and fight in his place?
- yesenadam 6y agoIt's a fairly well-known trick where you play 2 strong players at the same time: You take the first player's move as white and play it yourself as white in the other game. So the two boards have the same position, with you playing different colours. That way you will have an even score in the 2 games. He did that with 4 pairs and the 9th was the head of the uni chess orgnisation, a weak player he beat easily.
- thom 6y agoYes, I was just wondering if I was missing something about the kickboxing comparison, because presumably Tim Ferriss did actually fight more or less on his own merits?
- FeepingCreature 6y agoIsn't the first example extremely bullshit? > A third party asks them to "assume that a coin is fair, i.e., has an equal probability of coming up heads or tails when flipped. I flip it ninety-nine times and get heads each time. What are the odds of my getting tails on my next throw?" Istm that Fat Tony here gets the right answer to the wrong question. Whether we should assume this is not part of the question. That this is a useful thing to ask IRL doesn't change the fact that if you posed this to me IRL and smugly quoted the ludic fallacy at me for correctly answering your question I'd be strongly tempted to deck you. https://xkcd.com/169/ https://xkcd.com/169/ comes to mind.
- baxtr 6y agoThat’s actually exactly what I was going to say. Of course you should update your priors continuously and thus evolve your model. A model is never perfect but it’s the best approximation to reality we have. In the end, Fat Tony has a model in his head, too.
- FeepingCreature 6y agoRight - "assume at the start that the coin is fair - you are free to update the assumption as you go" is a different thing than they said. Usually "assume that" assumptions are meant to hold throughout the question. As Randall says, "communicating badly and then acting smug when you're misunderstood is not cleverness."
- marvin 6y agoI think the central point here is that «assume that» is fine when working with a math problem, but can kill you in real life. If you’ve just lost two billion dollars, or killed 200,000 people in a preventable war, no one cares that the assumptions were reasonable.
- FeepingCreature 6y agoRight, but the study has nothing to do with this, because the question was not in real life, but about a fictional scenario. "Assume you jump off a bridge. Would you be dead?" "No, because I'd change my mind. What, you think I'd jump off a bridge because someone tells me to?" "No, but I'd rather expect you'd assume it because I tell you, in the context of a hypothetical."
- aaron695 6y agoI think The Emperor Wears No Clothes. This has no meaning. But it's vague and meaningless enough you can pull it out when you want to prove something involving statistics or models not working, which they mostly don't.
- raxxorrax 6y agoA case against hubris but also the next step to declare every written word as fallacious.
- quickthrower2 6y agoAnd yet companies make a fortune betting on markets or sports using those exact "Ludic Fallacy" models - like linear regressions, probability etc. They know it's real life, and many someone else is fixing the coin toss, but they can still get an advantage. In any real casino, 99 blacks in a row and they'd shut down the table.
- Reimersholme 6y ago...and then a financial crisis hits and suddenly they expect the government to bail them out because they didn't account for that risk in their models.
- Ambol 6y agoOr they knew all along that the government would bail them out, so they were playing a very different game than everybody else.
- quickthrower2 6y agoHa ha well that’s a different story more to do with bonus culture. An example of where the street smarts might come into play in modelling the modellers and predicting 2008
- PhantomGremlin 6y agoAnd yet companies make a fortune betting on markets Until they don't. This happened in March, and I just love the Reddit headline: Someone yolo’d a pension fund The trade was easy money until fat tails caught up with it. I think Matt Levine also discussed this, as did HN. https://old.reddit.com/r/wallstreetbets/comments/g5r5n6/someone_yolod_a_pension_fund/ https://old.reddit.com/r/wallstreetbets/comments/g5r5n6/some...
- everybodyknows 6y agoAh ha! Thank you so much -- been wondering for months who might have been on the other side of this trade: https://www.forbes.com/sites/antoinegara/2020/03/25/billionaire-bill-ackman-100-fold-return-on-coronavirus-hedge-2-billion/ https://www.forbes.com/sites/antoinegara/2020/03/25/billiona... The tragedy of it of course is that the incompetent pension managers will keep their last ten years of performance bonuses, and the citizens of Alberta will get ... tax increases.
- stared 6y agoOne core example of modeling something as a game is dating (as in "The Game" by Neil Strauss). Two literal takes on that are: - "Super Seducer: How to Talk to Grils" a (somewhat controversial) game on Steam by Richard La Ruina, a Pick-Up Artist - https://store.steampowered.com/app/695920/Super_Seducer__How_to_Talk_to_Girls/ https://store.steampowered.com/app/695920/Super_Seducer__How... - "If Dating was like Who Wants to be a Millionaire" - https://www.youtube.com/watch?v=7E33j3gQg98 https://www.youtube.com/watch?v=7E33j3gQg98 While some analogies of a game are in place (depending on someone's action, it's "fail" or "progress"), I think that the worst fallacy is that one always can, and should, "win". Depending on the attitude, it is anything from frustrating (obsessing why one has failed despite the effort, or ending in a relationship with a wrong person) to outright dangerous.
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- sradman 6y agoAll models are simplifications of real-world phenomena, the question is how useful they are. Taleb’s Ludic Fallacy is a useful prod to remind us to consider our core assumptions.
- throwaway2245 6y agoI haven't understood this as a fallacy. In the "suspicious coin" example, there is an opening assumption that the coin is fair, but it transpires clear evidence to the contrary. It isn't a fallacy to continue to treat this as a game: it has just become sensible to drop the assumption and treat it as a game where you are unsure about whether the coin is fair (as the second player in the example, in fact, does).
- thih9 6y ago> In the "suspicious coin" example, there is an opening assumption I understood it differently: there are no assumptions per se, just a request to make an assumption. The request is made by a third party and all this is part of the thought experiment. > It isn't a fallacy to continue to treat this as a game True. The article states that “The ludic fallacy here is to assume that in real life the rules from the purely hypothetical model (where Dr. John is correct) apply.”. > treat it as a game where you are unsure about whether the coin is fair This significantly modifies the scope of the original game. I understood this as an example of how simplified models might easily stop being useful because of real life conditions.
- gmuslera 6y agoThat is the difference between a model and the reality. It "should" be fair, but in reality (with all the factors you see, and maybe several others that you don't) it seem to not be working that way.
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- dtjohnnyb 6y agoThe book Range talks about a similar idea, the idea of "kind" and "wicked" learning environments. In kind environments (most games) "patterns recur, situations are constrained, and importantly, every time you do something you get feedback that is totally obvious, all the information is available, the feedback is quick, and it is 100% accurate" In contrast, wicked environments (most of the rest of life!!!) none of the properties of kind environments hold, and in some extreme cases the feedback teaches you the exact wrong lesson. In the book, he similarly warns against taking the lessons from successful people in chess or golf and applying them to our own wicked lives.
- misiti3780 6y agoWhat did people think about that book ? I enjoyed it but felt like it was a bunch of other peoples ideas (Taleb, Kahneman, Levitin, etc) strung together.
- rogerclark 6y agothat's every book
- Emphere 6y agoCan't help but feel that people here are missing the point and perhaps too hung up on the specific example in the wikipedia article. The broader point is about the misuse and misapplication of technical/"rational" methods in real life i.e. not thinking about whether the model can actually be usefully applied in a certain real world situation. For example, blindly following rote statistical methods/not understanding their assumptions is what got us into the whole psychology replication crisis mess.
- Reimersholme 6y agoYes. One of the key points Taleb likes to make is that many real life situations are fat tailed, i.e. extreme events are much more likely than what someone assuming a normal distribution would account for, which might help explain why the financial system turns out to be so extremely fragile over and over again every time a major event/crisis occurs.
- bezmenov 6y agoYes, it’s just a variation of don’t confuse the map for the territory, or the more general, don’t confuse the model for reality.
- xondono 6y agoI get the idea (although I’m not sure I’d call it a ‘fallacy’), but the examples are horrible.
- twirlock 6y agoFor some reason, it's just so perfectly expected that commentors here don't like this wikipedia article.
- kwhitefoot 6y agoSeems like a long winded and sanctimonious way of saying that models are simpler than the reality that they mimic. Bears in woods and catholic popes come to mind.
- karmakaze 6y agoor spherical cows.
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- briankelly 6y ago"Map is not the territory." Straightforward, succinct, and no need to use latin or invoke Plato.
- ajross 6y agoIt sounds obvious, but in practice it's not. It's an election year, so take polling as a great example: Every poll of a race comes with two numbers, one a fraction of support for whatever issue or candidate is being measured, and the other a "margin of error" (which in the industry is a 95% confidence interval, I believe). This is just a statistical measure based on sample size. It's backed by two centuries of math and no one interestingly disputes the way the number is calculated or whate it means. And there are a LOT of these polls taken. So take all those polls, check their variance, and you'll find that it's much higher than the value you'd expect given the margins of error they reported. This is a routine effect. So square that: why are the MoE numbers "wrong", given that multiple measurements of the same number are giving values with more noise than expected? The answer is exactly this paradox. The model, that all these polls are measuring the same thing, is wrong. They aren't measuring the same thing. The different polls use different sampling methods, they weight their data using different algorithms, with opinion polls they phrase the questions slightly differently (or just ask the same questions in a different order), all of which affect the results. And this happens everywhere in science. It's a frightenly easy mistake to make, especially as data sets get large.
- Animats 6y agoThat's Taleb. Taleb ran a fund that bought options way out of the money. This loses money every year, unless there's a big crash. His fund happened to be active in 2008, and made a ton of money that year. He doesn't release the numbers for other years. Not clear if this is a net win over a full business cycle. Taleb is sort of a counter to Black-Sholes option pricing. Black-Sholes assumes a Gaussian distribution. Given that assumption, a few numbers let you quantify risk. That's convenient, but somewhat unrealistic, and was taken way too seriously by the bond market from the 1980s to 2008. It provided a philosophical underpinning for the junk bond market. (They can't possibly all go bad at the same time, can they?)