Jason Zweig on Being Your Own Quant
Until the day you are relieved of your cognitive biases, it is important to frequently remind yourself of your mental fallibility so that you can be on guard for their effects. Jason Zweig’s “How to Be Your Own Quant” is perfect for that task. Here are a few gems from the short article:
- Take a hint from hedge-fund manager Magnetar Capital LLC, which is seeking to “take what was in our head and our database and make rules out of it” — measuring intuitions, testing them for reliability and then basing decisions on them. Human judgment is inconsistent. People are good at knowing what matters, but not very good at always looking at it the same way.
- Presented with identical information under different circumstances, we come to different conclusions about it. The judgments of everyone from accountants to physicians and weather forecasters will vary depending on such factors as mood, time of day and how many other demands they have on their attention.
- Decades ago, the psychologist Lewis Goldberg showed that if you determine which factors experts consider most important in coming to a conclusion, you can program a computer to size up a decision based on those — and only those — factors. The computer’s predictions using the experts’ criteria turned out to be more accurate than the experts’ own predictions, because the computer always interprets the same evidence the same way.