Take a rifle and randomly spray bullets at the side of a barn. Invite some gun-toting friends around to see your handiwork and accept their lavish praise as a dead-eyed sharpshooter, knowing all the while it's an illusion. The trick is to paint the targets after you've made the bullet holes. This, the Sharpshooter Effect, is essentially how many business gurus and investment analysts make their living. Worse, the effect affects statistical analysis of data that are genuinely important, like clusters of birth defects. The problem is that we're not very good at distinguishing randomness from order and this causes us no end of grief as we pursue illusory patterns in the belief that we're being smart.
Meeting Oprah
Management and investment gurus are a breed apart whose opinions offer the rest of us hope that we can learn from their ideas to develop skills that ensure we can create above average companies or secure above average returns on our investments. In book after book and article after article we're treated to example after example of real-life imitating theory as the gurus' ideas are hammered home to us in the way we understand best; one damn anecdote at a time.
Of course, management gurus are out to make a living and writing books entitled "I Don't Know Any More Than You Do" and "Duh?" isn't a surefire way to make the best-seller lists and meet Oprah. In the main, though, all these erstwhile peddlers of secondhand hope are doing is free-riding on the Sharpshooter Effect, by painting targets around their examples to "prove" whatever point they're trying to make. Of course, they never point out the other examples where they fall over pulling the trigger, shoot the weathercock and end up flat on their backs in the cattle trough with a chicken on their heads.
Non-Random Humans
The trouble is that the world is just so full of stuff that if you look hard enough you'll be bound to find some correlations. Unfortunately, unless you do proper statistical analysis, the likelihood is that they'll be illusory. For example, clusters of early childhood cancer sufferers in specific geographic areas, recently focused on the presence of mobile phone antennae, are regularly shown to be probably nothing more than a normal statistical variation caused by arbitrarily drawing targets around the clusters after the event. Not…
Another sobering and thought-provoking article, timarr.
I am coming round more and more to the view that I really don't know anything and that my analysis is only worth something if someone somewhere else has come up with the same - or ideally better - numbers than me and so id prepared to take my investments when I'm ready to sell. The recent debates on Dana Petroleum Plc (LON:DNX) have illustrated the point.
Reading your article, I was also put in mind of a TV programme where the illusionist Derren Brown deployed a 'System' for betting in which one punter won an extraordinary sequence of horse-races based on tips provided by Brown.
As he revealed himself, the solution was that he had actually provided tips to (hundreds?) of betters such that every horse in every race was covered. That way he could subsequently trace through the results of just one 'lucky' punter from the original population to make a compelling TV show about his extraordinary betting 'system.'
SW10
