Understanding the Conjunction Fallacy…
Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.
Which is more probable?
- Linda is a bank teller.
- Linda is a bank teller and is active in the feminist movement.
85% of those asked chose option 2, whereas the probability of two events occurring together (in “conjunction”) is always less than or equal to the probability of either one occurring alone.
This seems to occur because of the Representativeness Heuristic, in each case the more detailed second statement seems more representative of the person described in the back-story.
This goes beyond being an interesting anecdote. In Pattern Based Strategy, pattern detection and analysis (as well as hypotheses and probabilities of occurrence) need to be taken into account. To get ‘fooled by the back-story’ and the basics of probability (i.e. unless we know with absolute certainty that Linda is an active feminist), then statement 2 must be less probable.
Fooled by Representativeness
Nassim Taleb introduced us to Fooled by Randomness. There is also merit in not being fooled by detail, Representativeness and incorrect understanding of probability. Pattern seeking could be skewed by Conjunction Fallacies and specious hypotheses.
Further Reading on Nassim Nicholas Taleb
- Antifragile: Things that Gain from Disorder
- The Black Swan: The Impact of the Highly Improbable
- The Bed of Procrustes: Philosophical and Practical Aphorisms
- Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets?: How Financial Practice Differs from Theory
- The Volatility Surface: A Practitioner’s Guide