In the previous post I mentioned the book Radical Uncertainty: Decision Making Beyond the Numbers by Mervyn King and John Kay. The book, written by two prestigious British economists, attacks the bad use of statistics and probability calculus in fields where they are not always applicable, such as history, economics and the law. Let’s look at a few examples:
- What do we mean when we say that Liverpool F.C. has a 90% chance of winning the next match? One possible interpretation is that if the match were to be played a hundred times, with the same players and the same weather conditions and the same referee, Liverpool would win 90 times, and draw or lose the other ten. But the match will be played just once. Does it make sense to talk about probabilities? No, because there are no supporting data on frequency. What is meant is that the person speaking believes that Liverpool will win. Nothing more. It is a subjective probability. Milton Friedman wrote: We can treat people as if they assigned numerical probabilities to every conceivable event. (Price Theory, 1962).