Innumeracy

John Allen Paulos is his book Innumeracy writes:

Some would-be advisor puts a logo on some fancy stationery and sends out 32,000 letters to potential investors in a stock letter. The letters tell of his company's elaborate computer model, his financial expertise and inside contacts. In 16,000 of these letters he predicts the index will rise, and in the other 16,000 he predicts a decline. No matter whether the index rises or falls, a follow-up letter is sent, but only to the 16,000 people who initially received the correct "prediction." To 8,000 of them, a rise is predicted for the next week; to the other 8,000, a decline. Whatever happens now, 8,000 people will have received two correct predictions. Again, to those 8,000 people only, letters are sent concerning the index's performance the following week: 4,000 predicting a rise; 4,000 a decline. Whatever the outcome, 4,000 people have now received three straight correct predictions. This is iterated a few more times, until 500 people have received six straight correct "predictions." These 500 people are now reminded of this and told that in order to continue to receive this valuable information for the seventh week they must each contribute $500. If they all pay, that's $250,000 for our advisor. If this is done knowingly and with intent to defraud, this is an illegal con game. Yet it's considered acceptable if it's done unknowingly by earnest but ignorant publishers of stock newsletters, or by practitioners of quack medicine, or by television evangelists. There's always enough random success to justify almost anything to someone who wants to believe.

This is a great example showing how unsuspecting (& hopeful) people can be swayed into believing that a guru has magical predictive powers. It happens all the time.

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