Expertitis

Just about every human decision about the future is tainted by a gap — the difference between what we think we know and what we actually know. The more expert we are, the wider the gap is likely to be. — Nassim Nicholas Taleb

In an earlier post in 2007 I stated: "To keep perspective I try remember that professionals built the "unsinkable" Titanic, while amateurs supposedly built the arc." OK, so there was no arc, but it's a useful analogy to keep in mind to be weary of experts.

The "quants" have taken an intellectual hammering during this financial crisis, and rightly so. Many were running models with data set of less than 10 years coupled with flawed assumptions that distributions are always Gaussian!

Here is a classic summary of a series of experiments proving the dangers of expertitis: http://www.strategy-business.com/enews/enewsarticle/ac00001