Wednesday, October 15, 2008

How to Spot Incompetence

Seth Roberts:

Nassim Taleb says, “When someone says he’s busy, he means that he’s incompetent.” I think he also distrusts anyone wearing a tie. In college, I wrote an essay called “The Scientific _______” in which I argued that any writer who uses the term scientific without explaining what it means is incompetent and you should stop reading immediately.

I still believe that. Now, for the first time, I am going to update my list of incompetence giveaways: Plotting something on a raw scale that should be on a log scale. Size-versus-time data should usually have the size axis on a log scale.

This presentation by someone at Sequoia Capital, the Silicon Valley venture capital firm, is full of examples. The Dow Jones Industrial Average (from the 1960s to now) is on a raw scale (where the distance from 5 to 10 equals the distance from 10 to 15), should be on a log scale (where the distance from 5 to 10 equals the distance from 10 to 20). Same for an index of housing prices. Same for the Nikkei. Many other examples. You can still believe the data, of course; just don’t trust what’s concluded from the data. Given the ubiquity of this practice (plotting on a raw scale what should be on a log scale), especially among financial supposed-experts, Taleb and I are not far apart.

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