It looks like some people are already wise to how the human mind really works!
http://www.cs.auckland.ac.nz/~pgut001/pubs/usability.pdf
"If you dont have a coin handy, heres a simple gedanken experiment that you can
perform to illustrate a variation of this phenomenon called the gamblers fallacy. The
gamblers fallacy is the belief that a run of bad luck must be balanced out at some
point by an equivalent run of good luck [162][163]. Consider a series of coin flips
(say five), of which every single one has come up heads. The flips are performed
with (to use a statistical term) a fair coin, meaning that theres an exact 50/50 chance
of it coming up heads or tails. After five heads in a row, there should be a higher
probability of tails appearing in order to even things up.
This is how most people think, and its known as the gamblers fallacy. Since its a
fair (unbiased) coin, the chance of getting heads on the next flip is still exactly 50/50,
no matter how many heads (or tails) its preceded by. If you think about it
emotionally, its clear that after a series of heads there should be a much higher
chance of getting tails. If you stop and reason through it rationally, its just as clear
that theres no more chance of getting heads than tails. Depending on which
approach you take, its possible to flip-flop between the two points of view, seeing
first one and then the other alternative as the obvious answer.
The gamblers fallacy is even more evident in the stock market, and provides an
ongoing source of material (and amusement) for psychologists. A huge number of
studies, far too many to go through here, have explored this effect in more detail
(applied psychology professor Keith Stanovich provides a good survey [106]), but
heres a quick example of how you can turn this to your advantage.
There are large numbers of stock-market prediction newsletters that get sent out each
week or month, some free but most requiring payment for the stock tips (or at least
analysis) that they contain. In order to derive maximum revenue with minimum
effort, you need to convince people that your predictions are accurate and worth
paying for. The easiest way to do this is to buy a list of day traders from a spam
broker and spam out (say) 200,000 stock predictions, with half predicting that a
particular stock will rise and the other half predicting that itll fall. At the end of the
week (or whatever the prediction period is), send out your second newsletter to the
half of the 100,000 traders for which your prediction was accurate, again predicting a
rise for half and a fall for the other half. Once thats done, repeat again for the 50,000
for which your prediction was accurate, and then for the next 25,000, and then for the
next 12,500. At this point youll have about 6,000 traders for which youve just made
five totally accurate, flawless stock predictions in a row.
Now charge them all $1,000 to read your next prediction.
Its not just the (coincidental) winners in this process that this will work on.
Theres a bunch of psychological biases like confirmation bias (he was right all the
other times, it must have been just a fluke) and the endowment effect/sunk cost
fallacy (weve come this far, no turning back now) that will ensure that even the
losers will keep coming back for more, at least up to a point. It terms of return on
investment its a great way to make a return from the stock market for very little
money down, youre merely offering no-strings-attached advice so its not fraud
(although youd have to come up with some better method of drawing punters than
spamming them), and the people taking your advice probably arent that much worse
off than with any other prediction method they might have chosen to use.
Some cultures have evolved complex rituals that act to avoid problems like the
gamblers fallacy. For example the Kantu farmers in Kalimantan, Borneo, use a
complex system of bird omens to select a location for a new garden. Since the
outcome of these omens is effectively random, it acts to diversify the crop and garden
types across members of the community, and provides some immunity against
periodic flooding by ensuring that garden locations arent fixed, for example because
this location hasnt flooded in the past five years, or this location flooded last year,
so it wont be hit again this year [164]. Even if the bird-omen selected site does get
flooded out that year, the amazing human ability to rationalise away anything means
that itll be blamed on the fact that the omen was read incorrectly and not because the
bird-omen system itself doesnt work."
http://www.cs.auckland.ac.nz/~pgut001/pubs/usability.pdf
"If you dont have a coin handy, heres a simple gedanken experiment that you can
perform to illustrate a variation of this phenomenon called the gamblers fallacy. The
gamblers fallacy is the belief that a run of bad luck must be balanced out at some
point by an equivalent run of good luck [162][163]. Consider a series of coin flips
(say five), of which every single one has come up heads. The flips are performed
with (to use a statistical term) a fair coin, meaning that theres an exact 50/50 chance
of it coming up heads or tails. After five heads in a row, there should be a higher
probability of tails appearing in order to even things up.
This is how most people think, and its known as the gamblers fallacy. Since its a
fair (unbiased) coin, the chance of getting heads on the next flip is still exactly 50/50,
no matter how many heads (or tails) its preceded by. If you think about it
emotionally, its clear that after a series of heads there should be a much higher
chance of getting tails. If you stop and reason through it rationally, its just as clear
that theres no more chance of getting heads than tails. Depending on which
approach you take, its possible to flip-flop between the two points of view, seeing
first one and then the other alternative as the obvious answer.
The gamblers fallacy is even more evident in the stock market, and provides an
ongoing source of material (and amusement) for psychologists. A huge number of
studies, far too many to go through here, have explored this effect in more detail
(applied psychology professor Keith Stanovich provides a good survey [106]), but
heres a quick example of how you can turn this to your advantage.
There are large numbers of stock-market prediction newsletters that get sent out each
week or month, some free but most requiring payment for the stock tips (or at least
analysis) that they contain. In order to derive maximum revenue with minimum
effort, you need to convince people that your predictions are accurate and worth
paying for. The easiest way to do this is to buy a list of day traders from a spam
broker and spam out (say) 200,000 stock predictions, with half predicting that a
particular stock will rise and the other half predicting that itll fall. At the end of the
week (or whatever the prediction period is), send out your second newsletter to the
half of the 100,000 traders for which your prediction was accurate, again predicting a
rise for half and a fall for the other half. Once thats done, repeat again for the 50,000
for which your prediction was accurate, and then for the next 25,000, and then for the
next 12,500. At this point youll have about 6,000 traders for which youve just made
five totally accurate, flawless stock predictions in a row.
Now charge them all $1,000 to read your next prediction.
Its not just the (coincidental) winners in this process that this will work on.
Theres a bunch of psychological biases like confirmation bias (he was right all the
other times, it must have been just a fluke) and the endowment effect/sunk cost
fallacy (weve come this far, no turning back now) that will ensure that even the
losers will keep coming back for more, at least up to a point. It terms of return on
investment its a great way to make a return from the stock market for very little
money down, youre merely offering no-strings-attached advice so its not fraud
(although youd have to come up with some better method of drawing punters than
spamming them), and the people taking your advice probably arent that much worse
off than with any other prediction method they might have chosen to use.
Some cultures have evolved complex rituals that act to avoid problems like the
gamblers fallacy. For example the Kantu farmers in Kalimantan, Borneo, use a
complex system of bird omens to select a location for a new garden. Since the
outcome of these omens is effectively random, it acts to diversify the crop and garden
types across members of the community, and provides some immunity against
periodic flooding by ensuring that garden locations arent fixed, for example because
this location hasnt flooded in the past five years, or this location flooded last year,
so it wont be hit again this year [164]. Even if the bird-omen selected site does get
flooded out that year, the amazing human ability to rationalise away anything means
that itll be blamed on the fact that the omen was read incorrectly and not because the
bird-omen system itself doesnt work."