Link Banana

The New Yorker’s James Surowiecki argues that conflicting (and imprecise) headline numbers that come in America’s official job creation and unemployment numbers leads to both confusion and unexpected market moves. From this, some valuable wisdom comes:

As many studies have shown, people don’t have an intuitive understanding of things like margins of error and random sampling; they prefer to focus on a single number, even if it’s falsely precise, and so end up overemphasizing the report’s headline number.Investors are also subject to the so-called “salience bias”—high-profile information is weighted heavily even if it’s flawed. That’s why market moves in response to government reports are often surprisingly big—especially when, as now, they seem to substantiate investors’ worst fears. At this point, the market is locked in a hard-to-break feedback loop: the fact that traders act as if the jobs report were definitive makes it so. A little information can be a dangerous thing.

(via brijit)