By: La Papillion

I’m in a rather pensive and introspective mood these days. Such days are usually my most creative days too. I remember doing some artwork when my mood is at the worst, perhaps I’ll share with my shareholders here one day.

I’m thinking a lot about the probability and chances since I’m in the midst of reading the book by Nassim Nicolas Taleb’s The Black Swan. Let me ask these 2 questions:
Question A: 90% of residents living in Tanah Merah are rich. I live in Tanah Merah, so what’s the probability of me being rich?

Question B: 90% of residents living in Tanah Merah are rich. I’m going to live in Tanah Merah, so what’s the probability of me being rich?

(Interesting note: I had to answer this question more often than I had to, so I thought I’ll be quite interesting to think harder about it when I was traveling on the bus today)

In question A, the probability of me being rich is 90%. Since I live in Tanah Merah and I’m considered a resident there, therefore I’m subjected to the sample which the probability of 90% is calculated. In 100 different alternate and parallel realities, I have (on average) 90 realities in which I’ll be rich.

In question B, the probability becomes unknown. If one didn’t think hard enough and gives it a fleeting thought only, it becomes quite tempting to think that the probability of me being rich is 90% too, based on ‘statistical data’. But did you notice that that there is not enough information to determine the probability of me being rich? This is quite different if I’m already living in Tanah Merah. In that case, my probability is 90%. Yet if I’m going to live in Tanah Merah, the probability cannot be determined.

Thus, the probability of past data will be changed when a new comer enters the data base. Yet, the past probability cannot be extended to the new comer.

Do we commit the same logical error when we’re chasing after historical results? Did we place too much faith on extrapolating past data to predict the future? Read more…