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Fooled by randomness: the hidden role of chance in life and in the markets


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summary

Because the test is wrong 5% of the time, it will find 50 people in a thousand who supposedly have the disease, when in fact there’s only one person in a thousand who really has the disease — 1 in 50, or 2% of the people who tested positive. Taleb concludes, “Think of the number of times you will be given a medication that carries damaging side effects for a given disease you were told you had … ”


item type
a chapter in a book
author
Nassim Taleb
 
Buy this book from
chapter
Randomness and Our Mind
publisher
Random House
year
2005
pages
p. 206–7 (Updated 2nd ed. edition)

excerpt

Below is the account of a well-known test, and an embarrassing one for the medical profession. The following famous quiz was given to medical doctors (which I borrowed from the excellent Deborah Benett’s Randomness).

A test of a disease presents a rate of 5% false positives. The disease strikes 1/1,000 of the population. People are tested at random, regardless of whether they are suspected of having the disease. A patient’s test is positive. What is the probability of the patient being stricken with the disease?

Most doctors answered 95%, simply taking into account the fact that the test has a 95% accuracy rate. The answer is the conditional probability that the patient is sick and the test shows it—close to 2%.