Thread by @davidboxenhorn

One of the points that was made yesterday in RWRI is that many of the irrational tendencies that people have, for example mental accounting, turn out to be perfectly rational when ecological considerations are taken into account

#RWRI

But today we talked about being fooled by randomness. @nntaleb put up a histogram. He generated 20 pairs of random numbers from two normal distributions that had a correlation of 0.2. This is a high correlation, but many of the sets, by chance, had *negative* correlation!

In real life, most people who observe a correlation, and have 20 observations, will have a high confidence in the correlation that they observe, despite the fact that they are very likely to be wrong. How can we reconcile our evolved intuitions with fooled by randomness?

Our intuitions evolved over millions, even billions, of years. Shouldn't they be ecologically correct? In The Black Swan, @nntaleb suggests that it is our environment that changed, that we are evolved for an environment in which we were not fooled by randomness

It occurs to me that there's another explanation. Evolution is population-level phenomenon. The individual doesn't see evolution, it sees only survival. These are not the same ting! Evolution only cares about the winners, not about the losers

This means that evolution will select for traits that lead us to take outsize risks when there are outsize rewards - or, to avoid outsize penalties. Suddenly, it "makes sense" to take more risk when you are losing, exactly the opposite of what you should do to survive!