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  • Numeracy and Wealth

    Abstract Numeracy is defined as the ability to understand and use numerical information. We examined the relationship between numeracy and wealth using a cross-sectional and a longitudinal study. For a sample of approximately 1000 Dutch adults, we found a statistically significant correlation between numeracy and wealth, even after controlling for differences in education, risk preferences,… Read more…

    Numeracy and Wealth
  • How To Take A Casino For $20 Million
  • What You See

    As part of a recent discussion in the Mentor Program we looked at the nature of returns and how they can be distributed in the real world which is very different to how you want them to be distributed in your head. For the conversation I posted the graph below which is a series of… Read more…

    What You See
  • You Actually Know Less Than You Think You Do

    I found this fascinating and it had me drawing bikes on a blank piece of paper. The central issue is that we actually know less about he world than we think we do.  These errors abound in simple tasks and in our understanding of the way the world works. It is natural therefore that such… Read more…

    You Actually Know Less Than You Think You Do

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Numeracy and Wealth

Abstract

Numeracy is defined as the ability to understand and use numerical information. We examined the relationship between numeracy and wealth using a cross-sectional and a longitudinal study. For a sample of approximately 1000 Dutch adults, we found a statistically significant correlation between numeracy and wealth, even after controlling for differences in education, risk preferences, beliefs about future income, financial knowledge, need for cognition or seeking financial advice. Conditional on socio-demographic characteristics, our estimates suggest that on average a one-point increase in the numeracy score (11-point scale) of the respondent is associated with 5 percent more personal wealth. Additionally, we find that numeracy is a key determinant of the wealth accumulation trajectories that people follow over time. Over a 5-year period, while participants with low numeracy decumulate wealth, participants with high numeracy maintain a constant positive level of wealth.

More here – Science Direct

How To Take A Casino For $20 Million


 

What You See

As part of a recent discussion in the Mentor Program we looked at the nature of returns and how they can be distributed in the real world which is very different to how you want them to be distributed in your head. For the conversation I posted the graph below which is a series of monthly returns for one of our systems.

Discussion around these sort of returns are always interesting because they betray some interesting aspects of our native biases. When I post this sort of thing everyone’s eyes are automatically drawn the the three large outliers and the data points in between are missed.  All that is seen are the highlights and not the trajectory. There is a pronounced tendency to anchor on these results and only these results, so we lock onto these not as outliers but as inevitable and more common than they actually are. More important we assume that these are the defining elements of the system whilst ignoring other data points. Optimism is a natural thing in people and traders need to be optimistic to keep going but we tend to run head long into the land of optimism bias where we overestimate favourable outcomes. There are a few things about these results that need pointing out. Firstly, the system starts of with a cluster losses and losses are a predominate feature of the system. Secondly, and from my perspective most importantly is the time scale – this was missed by everyone. The outliers come several years into the systems history. Both system and operator have to mature and this process takes time.

This focus bias that occurs when we look at results or charts of any sort is important in developing systems and ideas. Consider the chart below which has two moving averages on it.

Capture

The eye is naturally drawn to the to the final third of the screen where we have a sharp lift and then collapse. We see that for this instance the moving averages did a good job of capturing the move. Our brain then makes a leap and assumes that these moving averages will capture every move and in isolation if every move where like this then they would. However, price does not move in a sine wave, it is dirty, lumpy and chaotic. Conditions that do not suit moving averages very well./ If you look at the above chart again you instances where the crossovers went nowhere or simply cycled through congestion.  The central issue is that we did not evolve to trade – we evolved to survive by seeing patterns and perceptions of movement. It is natural that our psychology is geared to maximise this sort of behaviour but in trading it can lead us to make false conclusions or to see things that are not really there. Or which perhaps require much closer and thoughtful inspection.

 

You Actually Know Less Than You Think You Do

I found this fascinating and it had me drawing bikes on a blank piece of paper. The central issue is that we actually know less about he world than we think we do.  These errors abound in simple tasks and in our understanding of the way the world works. It is natural therefore that such errors creep into the way we think the market works and the way it actually does work. More importantly such errors will creep into the way we think we operate and the way we think we operate in concert with the market.

 

 

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The Life-Changing Magic of Not Giving A F*ck – Sarah Knight

Does Creativity Decline with Age?

This question has attracted scientific research for more than a century. In fact, the first empirical study of this issue was published in 1835. Thus, I can offer a confident answer: not quite! At least not if creativity is assessed by productivity or by making original and valuable contributions to fields such as science and art. By that measure, output first increases in our mid-20s, climaxes around our late 30s or early 40s, and then undergoes a slow decline as we age. A person’s single best work tends to appear at roughly the same age as their output peaks. But their expected creative productivity at 80 will still be about half of what it was at that high point. Whether you view that as a significant drop or not depends on whether you see the glass as half empty or half full.

More here – Scientific American

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The Trading Game Pty Ltd (ACN: 099 576 253) is an AFSL holder (Licence no: 468163). This information is correct at the time of publishing and may not be reproduced without formal permission. It is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.