This looks more like a critical summary or an article review, rather than an essay!
The article 'False hope', published on February 21st 2015 in the Economist, deals with the use of statistical data and its implication for investment strategies.
Firstly, the author presents a negative example of how statistical data can be misused in order to obtain benefits: a number n of prospective clients receive an e-mail by a deceitful investment firm stating that a particular stock will go up/down. As we know, the probability for either event is 50%. After the first round of e-mails
sent, half of the client pool will have received an e-mail with a positive prediction and the same procedure is then repeated till round 10. In the end, there will be (n/(0.5)^10) clients who believe that the investment strategy is outstanding and entrust their financial capital to the criminals.
Secondly, the article points out that statistical research in the finance industry is often managed in such a way as to produce a particular result. This is achieved by lowering the amount of tests conducted, which increases the probability of obtaining a certain result and decreases the associated costs.
According to the article, the problem seems to be that the methods in analyzing statistical data can be altered at one's own discretion, which stands in stark contrast to the traditional image of the deterministic nature of mathematics.
Two solutions are subsequently presented:
First, the number and quality of tests analyzing statistical data has to be improved. It is evident that the author is suggesting that the finance industry's willingness to pay has to increase considerably for the good of all market participants. The meaning of the underlined part is unclear.
Second, investment strategies should be tested against future data thereby reducing the risk of finding a correlation without causation. This, of course, strongly contradicts the incentive of the investment manager to pursue short-term over long-term results, as he/she would have to be patient without consulting past data. You could use "they" instead of he/she.
All in all, the Economist has published an interesting
readarticle about an issue not often emphasized byhighlighted in the business/economics-media. It further proves to a certain extent the independence of the publisher as about 50% of the ownership is composed of wealthy individuals linked with the finance industry and who do not have an interest in seeing the overall costs go up. However, apart from citing two solutions,the author fails to outline his own conclusion on the matter which makes me doubt as to what extent he has actually grasped the problem at hand. And that is never a good sign.
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