Personal Career and Financial Security Ch 4

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Questions and Answers

What standard of proof is generally accepted in hard sciences like physics?

  • Peer review
  • Anecdotal evidence
  • Expert testimony
  • Reproducibility (correct)

How should one approach the advice of an expert who stands to benefit from their recommendations?

  • Consider their advice without further questioning
  • Ignore their advice entirely
  • Trust their expertise blindly
  • Demand more evidence (correct)

Which factor contributes to the perception of low standards of proof in financial decisions?

  • Consulting multiple experts
  • Being overly cautious
  • Not questioning evidence (correct)
  • Asking for evidence

What is the significance of asking 'where is the evidence?' in investment decisions?

<p>It helps in identifying potential scams (D)</p> Signup and view all the answers

What happens to ideas in soft sciences that cannot be consistently reproduced?

<p>They remain unproven (D)</p> Signup and view all the answers

What can result from having a low standard of proof in investment strategies?

<p>Higher likelihood of financial failure (A)</p> Signup and view all the answers

Which of the following statements best encapsulates the relationship between evidence and financial decisions?

<p>The less evidence you have, the closer you are to gambling (C)</p> Signup and view all the answers

What is the standard of proof mentioned that determines the incorporation of something into a model?

<p>Personal choice (D)</p> Signup and view all the answers

Which statement best describes the analogy used in relation to cooking?

<p>I prefer to rely on professionals for tasks I dislike. (B)</p> Signup and view all the answers

What is the 'mountain chart' described in the text?

<p>A visual representation of past investment performance (A)</p> Signup and view all the answers

Why does the author demand to see actual prices instead of drawn lines?

<p>To avoid being misled by averages and trends (C)</p> Signup and view all the answers

What key concept does the author emphasize about prices in the market?

<p>Prices reflect real events of buyer and seller interactions. (A)</p> Signup and view all the answers

What does the author imply is often misinterpreted through the use of averages in investment analysis?

<p>The actual risk involved in investing (D)</p> Signup and view all the answers

How does the author regard opinions derived from past performance data?

<p>They often lack real evidence and are mere guesswork. (B)</p> Signup and view all the answers

What approach does the author take towards information that is not of personal interest?

<p>They apply a low standard of proof to its relevance. (C)</p> Signup and view all the answers

Flashcards

Standard of Proof

The degree of certainty required to believe a claim or idea, depending on its importance.

Reproducibility

Repeating an experiment to confirm its validity.

Unproven Idea

A claim that has not been supported by sufficient evidence.

Hidden Agenda

The potential for bias in an expert's advice due to personal gain.

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Financial Prudence

Being cautious and demanding evidence before making financial decisions.

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Questioning the Source

Evaluating the credibility and reliability of the source of information.

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The Evidence Question

Asking for evidence before investing in any opportunity, no matter how persuasive.

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Evidence

Information that supports a claim or hypothesis, verifiable and reliable.

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Asking, "Where is the evidence?"

The practice of rigorously questioning claims and demanding evidence before accepting them as true, especially in areas where decisions have significant consequences.

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Mountain Charts

Graphics used to represent past performance and expected performance of investments. Often presented as a rising line on a chart, giving the impression of consistent growth.

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Price as an Event

A real-world exchange of goods or services at an agreed upon price. Represents a tangible and immutable event in the market.

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Guesswork extracted from evidence

The use of averages, trends, and projections to smooth out data and create a simplified representation of market performance. Often used to mask the true volatility of investments.

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Investing with Evidence

The act of making decisions about investments based on factual data and critical analysis, rather than relying on marketing claims or subjective opinions.

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Examining Real Prices

A technique used to analyze investment opportunities by examining the actual prices at which trades occurred in the market, rather than relying on charts or projections.

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Study Notes

Standards of Proof and Evidence

  • Models are inherently flawed, and standards of proof vary depending on the model's importance.
  • Importance of a model dictates your acceptable standard of proof.
  • Personal examples: A low standard for a model of apple pie construction, but a high standard for investment models.

Critique of Mountain Charts

  • Mountain charts, plots of investment historical data, are not evidence.
  • They are misleading visual representations highlighting trends and averages.
  • Instead of charts, seek actual investment prices.
  • Individual transactions represent true events; averages and projections do not.
  • Actual prices represent factual data; calculated averages and trends are opinion-based and potentially misleading.

Scientific Standards of Evidence

  • "Hard sciences" (physics, chemistry, biology) use reproducibility as a standard for evidence.
  • Experiments repeated by numerous researchers validate findings.
  • "Soft sciences" (economics, psychology, sociology) face greater difficulties achieving widespread reproducibility due to experimental constraints.
  • The cold fusion experiment highlights the importance of reproducibility, as it lacked replication.

Importance of Evidence in Financial Matters

  • High standards of proof are crucial in investment decisions.
  • The world is full of individuals aiming to convince you to invest.
  • Demand evidence in any matter concerning investments.
  • Question sources, reliability, and sources' potential motivations.

Demand for Evidence from Experts

  • Experts are not trustworthy automatically. Beware of hidden agendas and motivations.
  • Even seemingly unbiased experts might have personal gains if you invest based on their recommendations.
  • A fundamental question to ask is: "If they are so smart, why aren't they rich?"
  • Continually seek evidence and question its validity before acting on advice, especially in financial matters.

Cautionary Note on Low Standards of Proof

  • Individuals with low evidence standards are more susceptible to financial losses.
  • Low standards of evidence lead to gambling-like risk-taking.
  • The wealthiest individuals are often the ones who demand robust evidence.

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