Tuesday, March 10, 2015

Even if it's a scam, fund managers could be given the benefit of the doubt.

I found this on the urban dictionary:
I’m constantly given false hope that me and my ex will get together.
False hope, according to that dictionary, is the belief passed on from someone that something may happen in the future when the chance that it might not happen is high and you do not know that chance is high.

Trust builds confidence.
Photo Credit: Waiting For The Word via Compfight cc
I was reading this economist.com article last week and the author thought this was another example of a false hope. It is a scam created around a statistical principle that was misused.

The scam: A fund manager randomly sends emails to thousands of people telling them that a stock will rise or fall. If it turns out positive, he sends another email to that group of people. If it turns out negative, that email is discarded and replaced. This round robin exercise on the positive group is carried out until one of them builds trust and makes a buy from the fund manager. It’s a scam but it’s a practice that many fund managers engage in.

The author says the problem lies with the misuse of a statistics rule. What would you call a fund manager who realizes he’s engaged in a scam and doesn’t make the appropriate corrections?

No comments:

Post a Comment

Your comments here.