I wrote earlier today about our general difficulty in dealing with probabilities in the context of Superstorm Sandy. Here is an interesting exercise broadly to test your abilities in this area and more particularly concerning information processing (from Michael Mauboussin‘s excellent new book, The Success Equation).
Jack is looking at Anne but Anne is looking at George. Jack is married but George is not. Is a married person looking at an unmarried person?
- (a) Yes.
- (b) No.
- (c) Cannot be determined.
To see the answer and an explanation for it, right-click over the text between the asterisk marks below (I tried to match that text color with the background as closely as I could; the text will “show up” when you do that).
* The answer is (a) but more than 80 percent of people choose (c). You can reach the correct answer only by considering all the possibilities. If Anne is unmarried, Jack is looking at her and if she is married, she is looking at George. This is a very helpful exercise for investing and for life in general. Consider all the possibilities. *
Above the Market 