Predicting Outcomes in Various Fields

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Questions and Answers

What type of predictive judgments rely on look-up tables and precise calculations?

Forecasting the stock market

Intuitions based on heuristics

Judgments made by engineers (correct)

Intuitions based on skill and expertise

What is an example of skilled intuition?

A chess master's rapid judgment

A physician's diagnosis

A contractor's estimate of project time

All of the above (correct)

What can sometimes lead to high-confidence judgments based on weak evidence?

Analysis of outcomes observed on similar occasions

Heuristics that substitute an easy question for the harder one (correct)

Precise calculations and look-up tables

Expertise acquired by repeated experience

What is Julie's notable characteristic?

She read fluently when she was four years old Signup and view all the answers

What is the question being asked about Julie?

What is her grade point average (GPA)? Signup and view all the answers

What is the goal of extreme predictions according to venture capitalists?

To avoid missing the next big thing Signup and view all the answers

What is the bias that is being corrected in discrete predictions?

Neglect of base rates and insensitivity to quality of information Signup and view all the answers

What is the outcome of unbiased predictions?

Modest and reasonable assessments of probability Signup and view all the answers

What is required to correct intuitive predictions?

Significant effort and critical thinking Signup and view all the answers

What is the limitation of unbiased predictions?

They never predict extreme or rare events Signup and view all the answers

What is the characteristic of unbiased predictions?

They permit the prediction of rare or extreme events only when the information is very good Signup and view all the answers

What is the purpose of having a baseline prediction?

To have a reference point for intuition Signup and view all the answers

When is the effort of correcting intuitive predictions justified?

Only when the stakes are high and you want to avoid mistakes Signup and view all the answers

What is the outcome of correcting intuitive predictions?

You will have moderate and reasonable predictions Signup and view all the answers

Why do venture capitalists prefer extreme predictions?

To call the extreme cases correctly, even at the cost of overestimating others Signup and view all the answers

What is the schematic formula for the factors that determine reading age?

Reading age = shared factors + factors specific to reading age Signup and view all the answers

What is the correlation between two measures equal to?

The proportion of shared factors among their determinants Signup and view all the answers

What is the author's most optimistic guess about the proportion of shared factors among the determinants of reading age and GPA?

30% Signup and view all the answers

What is the purpose of moving 30% of the distance from the average to the matching GPA?

To moderate the intuitive prediction Signup and view all the answers

Why do intuitive predictions need to be corrected?

Because they are not regressive and therefore biased Signup and view all the answers

What happens to nonregressive predictions when compared to actual outcomes?

They are found to be biased Signup and view all the answers

What is the result of correcting intuitive predictions?

Predictions are less biased Signup and view all the answers

What is the purpose of the four-step approach to prediction?

To moderate intuitive predictions Signup and view all the answers

What happens to the errors when using the corrected intuitive predictions?

They become smaller Signup and view all the answers

How does the associative machinery match predictions to evidence?

By matching the extremeness of predictions to the perceived extremeness of evidence Signup and view all the answers

Why do we need to regress our predictions toward the mean?

To moderate our predictions and avoid bias Signup and view all the answers

Why do we tend to put too much faith in our intuitions?

Because confidence is determined by the coherence of the best story Signup and view all the answers

What is a challenge for teaching and understanding the concept of regression?

It is an alien and difficult concept to comprehend Signup and view all the answers

Why do statistics teachers often dread teaching the topic of regression?

Because it is an alien and difficult concept to communicate and comprehend Signup and view all the answers

What happens when a regression is identified, according to the story of the flight instructors?

It is given a causal interpretation that is almost always wrong Signup and view all the answers

How can we learn to understand regression to the mean?

Through special training Signup and view all the answers

What is a characteristic of a rational person making predictions?

They make moderate predictions with an understanding of uncertainty Signup and view all the answers

Why might someone choose to accept extreme predictions, despite knowing they are distorted?

To avoid feeling anxious about uncertainty Signup and view all the answers

What is the main benefit of the corrective procedures proposed in the text?

They require individuals to think about how much they know Signup and view all the answers

In the example of hiring a young professor, why might the search committee favor Jane over Kim?

Because Jane has a stronger track record of scientific productivity Signup and view all the answers

What is the law of small numbers related to in the context of the professor hiring example?

The tendency to regress towards the mean in small samples Signup and view all the answers

What is System 1 associated with in the context of regression?

Extreme predictions and a willingness to predict rare events from weak evidence Signup and view all the answers

Why might a venture capitalist choose to invest in a start-up with a more uncertain prospect?

Because the start-up offers a higher potential reward Signup and view all the answers

What is a key difference between the two start-ups considered by the venture capitalist?

One start-up has a product with more certain demand Signup and view all the answers

What is the main challenge in evaluating the two start-ups?

Overcoming the initial impression that one start-up is more promising Signup and view all the answers

What is the primary goal of System 1 in making predictions?

To find a causal link between evidence and the target of the prediction Signup and view all the answers

What is the outcome of the process of intuitive prediction?

Predictions are almost completely insensitive to the actual predictive quality of the evidence Signup and view all the answers

What is the role of the reference group in evaluating evidence?

To compare the evidence to a general norm Signup and view all the answers

What is the result of intensity matching in the process of prediction?

Predictions are more extreme than the evidence on which they are based Signup and view all the answers

What is the role of associative memory in the process of prediction?

To construct the best possible story from the available information Signup and view all the answers

What is the outcome of the substitution process in making predictions?

The evaluation of the evidence is substituted as an answer to the question Signup and view all the answers

What is the primary difference between the two questions asked in the experiment by Amos and the author?

The first question is about impressions, and the second is about percentage of descriptions Signup and view all the answers

What is the remarkable aspect of the norm that participants have for descriptions of students by counselors?

It is acquired without conscious awareness Signup and view all the answers

What is the outcome of the translation process in making predictions?

A specific percentile score for the student's GPA Signup and view all the answers

What is the characteristic of the process of spreading activation in associative memory?

It is a feedback loop that settles on the most coherent solution Signup and view all the answers

What is the likely outcome of a student's performance based on the description provided?

Top 15% in their class Signup and view all the answers

What is the difference between the two sets of questions asked in the experiment?

The first set is about the description of the student and the second set is about the future academic performance Signup and view all the answers

What is the process that generates predictions that are systematically biased?

Substitution of evaluation for prediction Signup and view all the answers

What is the criterion used to select candidates for officer training in the Israeli Defense Forces?

A series of interviews and field tests Signup and view all the answers

What did the officers fail to do in their predictions of the future grades of the cadets?

Discriminate between their usual mission and the task of predicting future grades Signup and view all the answers

What is the result of the officers' predictions of the future grades of the cadets?

The predictions were completely nonregressive Signup and view all the answers

What is the term for the process of translating a judgment onto a different scale?

Intensity matching Signup and view all the answers

What is the consequence of failing to address the uncertainty of predictions?

Predictions that are systematically biased Signup and view all the answers

What is the role of substitution in predictions?

It generates predictions that are systematically biased Signup and view all the answers

Study Notes

Predictions and Intuitive Judgments

Forecasting is a common occurrence in various aspects of life, including economics, finance, military, and personal lives.
Predictions can be made based on look-up tables, precise calculations, and explicit analyses of outcomes or rely on intuition and System 1.

System 1 and Intuition

Intuition can be influenced by skill and expertise acquired through repeated experience, such as chess masters and fireground commanders.
Intuition can also arise from the operation of heuristics, which often substitute an easy question for the harder one that was asked.
Intuitive judgments can be made with high confidence even when they are based on nonregressive assessments of weak evidence.

Nonregressive Intuitions

Intuitive predictions tend to be insensitive to the actual predictive quality of the evidence.
Predictions are often based on WYSIATI (what you see is all there is), leading to a failure to consider other factors that may influence the outcome.
Evaluations of evidence are often substituted for predictions of outcomes, leading to biased predictions.

The Case of Julie

Julie is a senior in college who read fluently at the age of four.
Intuitive predictions of Julie's GPA would be based on her exceptional reading ability, without considering other factors that may influence her academic performance.
The correct way to predict Julie's GPA would be to consider the shared factors between reading age and GPA, as well as the factors specific to each outcome.

A Correction for Intuitive Predictions

Predictions can be corrected by considering the correlation between the evidence and the outcome.
A four-step process can be used to correct intuitive predictions:
1. Start with an estimate of the average GPA.
2. Determine the GPA that matches the impression of the evidence.
3. Estimate the correlation between the evidence and GPA.
4. Move the estimated GPA towards the average GPA based on the correlation.

Biases in Predictions

Intuitive predictions tend to be overconfident and overly extreme.
Correcting intuitive predictions can help eliminate biases and lead to more moderate and reasonable predictions.
However, correcting predictions may complicate decision-making and may not always be necessary.

When to Use Extreme Predictions

In certain situations, such as venture capital or conservative banking, extreme predictions may be justified due to the high stakes and the importance of avoiding certain types of errors.
However, it is essential to be aware of the limitations of the evidence and to consider the range of uncertainty around the most likely outcome.### Evaluating Candidates
Jane has a excellent research record, but her talk and interviews were less impressive compared to Kim's.
Intuitively, Kim might seem like the better choice, but this impression is influenced by the limited information available about her.
The law of small numbers indicates that extreme outcomes are more likely in small samples, making it important to regress predictions towards the mean.

Regressing towards the Mean

Extreme predictions and willingness to predict rare events from weak evidence are characteristic of System 1 thinking.
System 1 generates overconfident judgments due to the coherence of the story told from available evidence.
System 2 thinking requires special training to understand regression to the mean, as it is an alien and difficult concept to comprehend.
Galton initially struggled to understand regression, and statistics teachers often find it challenging to teach.
Students may only gain a vague understanding of this crucial concept, and will not learn to understand regression through experience.

Intuition vs. Reason

Following intuitions is more natural and pleasant, but it's essential to consider the uncertainty of predictions.
In academic choices, considering the regression to the mean might lead to selecting Jane, despite being less impressed by her.
A similar problem arises in venture capitalists choosing between investments in start-ups with different levels of uncertainty.
Careful consideration is necessary to determine whether the best guess about a start-up's prospects remains superior when uncertainty is factored in.

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Description

This quiz explores how different professionals make predictions and forecasts in their respective fields, including economics, finance, military, and more. Test your understanding of forecasting concepts and applications.