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In a message dated 3/14/2002 5:08:40 PM Central Standard Time, Wade T.Smith
<wade_smith@harvard.edu> writes:
> Predicting the Stock Market Is Child's Play
>
> http://news.excite.com/article/id/40488|oddlyenough|03-14-2002::11:29|reute
> rs.html
>
> March 14, 2002 11:24 am EST
>
> LONDON (Reuters) - A five-year old girl has beaten a financial analyst
> and an astrologer in an experiment to find the most accurate stock market
> predictions over a year, organizers said on Thursday.
>
> Tia Lavern Roberts not only outperformed her fellow participants in the
> National Science Week challenge but defied a 16 percent drop in Britain's
> FTSE 100 index of leading shares with her selection of issues.
>
> Her fantasy $7,000 portfolio rose 5.8 percent, while the one selected by
> analyst Mark Goodson lost 46.2 percent over the year. Astrologer
> Christeen Skinner's portfolio dropped 6.2 percent.
>
> Goodson used his years of expertise and computer analysis, and Skinner
> based her selection on planetary movements.
>
> "During an unstable year for the stock market...Tia's random selection
> has still managed to outperformed the others," Richard Wiseman, a
> psychologist from the University of Hertfordshire who devised the
> experiment, said in statement.
>
> Tia thought it was "wicked" that she'd beaten the market, the statement
> said.
>
> Her tips for this year's investors were Cadbury Schweppes, Northern Rock,
> Prudential, Pearson and Shell Transport.
Thanks for sending this, Wade.
There have actually been a number of similar experiments performed, such as
one involving a chimpanzee who picked the stocks. My own hypothesis regarding
such reports is this: any time someone performs one of these experiments and
finds that the ape, the child, the dog, etc. picked a losing or mediocre
portfolio, the story is uninteresting or even boring. The investigators may
not bother to report it, and if they did, the media would not consider it
newsworthy enough to report. Indeed, people who run web sites or who post to
newsgroups might not find the stories interesting enough to report. But on
those occasions when the child, the ape, or the dog out-performs the overall
market, then there is a vivid, gripping story. People spend more time
thinking about it and pondering the implications. But spending more time
thinking about it can increase the average number of times they retransmit
the story. Expecting others to find the story vivid, interesting, and worthy
of (rewarding) attention can also lead people to repeat and retransmit the
story more times. It is even possible that investigators have run their
experiments multiple times and only reported the outcomes that made great
stories, such as when the child, ape, or dog picked the most lucrative
portfolios. (That, however, is not an allegation against the current
investigators. I have not even read their report.) It is also possible that
the very same investigators have reported a number of "boring" results as
well as the provocative result, but that the media and others only
retransmitted the provocative stories. The stock market seems to generate all
sorts of propagating beliefs in addition to the ones mentioned in those stock
market articles at thoughtcontagion.com.
But what am I saying? Perhaps I should just establish the Immaturity Growth
Fund, a mutual fund whose stocks are all picked by a 5 year old. I could say
"Outperformed FTSE 100 for 1 year, 5 years, and the life of the fund." Anyone
want to invest? ;-)
--Aaron Lynch
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