False Precision
One exact figure given for something that is uncertain. The parts can each be exact; the single number for the whole hides the range it came from, and how the parts move together.
L2Level 2 of 3 · no narrower concepts
What it rests on, and what rests on it
It rests on
Rests on it
Nothing rests on it yet.
An instance
In 1998 the hedge fund Long-Term Capital Management priced each of its positions exactly, and gave one figure for the whole: it was unlikely to lose more than $35 million on any single day. That figure assumed the positions would move more or less on their own. When Russia defaulted on 17 August they moved together, and on Friday 21 August the fund lost $553 million.
From Definition before decision. Source: Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management, 2000.
Where it is used
Articles
- Definition before decision
Characters
- John Smithin Definition before decision
In the model
- The model's principle “Honest uncertainty”
Sources
- Daniel Kahneman, Thinking, Fast and Slow, ch. 20, The Illusion of Validity, 2011.