Your friend says to you: "I bet you $100 that in 2016 a Democrat will be elected as president of the USA."
Would you take such a wager? Why or why not?
You might think gambling is wrong. You might find it fun. You might not have enough money to want to risk it, even if you think you could win. You might simply agree with your friend. You might think the friend is trying to take advantage of you - some friend!
Or perhaps you think that unless you have insider knowledge there's absolutely no way you could make a bet, because you just can’t predict which way an election will go. After all, predicting the choices of a single person is hard enough. To predict an entire election you’d need to predict the actions of millions!
Turn your mind back to Summer 2008. The Olympics were hosted in Beijing, and Usain Bolt shattered the old record for the 100 meter dash. The Dark Knight was the most popular movie in theaters. There were warnings that the world’s economy was teetering on the "brink of systemic meltdown" as banks failed and global stock prices crashed. And in America there was endless debate on whether the next president would be John McCain or Barack Obama.
In this uncertain time, a young economist named Nate Silver had just set up his own blog, FiveThirtyEight, to talk about the elections. Silver was from the world of sports, and had made many predictions in baseball and other arenas. His goal was to use the same skills on politics. While some found his approach interesting, many pundits laughed him off as a nerdy outsider without a deep understanding of Washington.
And yet, he successfully predicted the outcomes for a whopping 49 out of 50 states, missing Indiana by a single percent, and successfully called the winner of all 35 Senate races that year! I don’t know whether he was involved in any bets, but if he was he sure came out ahead! The mainstream media began to see him as a modern-day wizard in political forecasting.
Well, guess what? You can be a wizard, too! Nate Silver did not have any insider knowledge, no crystal ball or magic mirror. His power came from a tool accessible to anyone with a pencil and paper: math. That’s right, as long as you have a paper and pencil, you have the ability to learn to be a forecasting wizard just like Silver.
So what’s the secret? A special branch of statistics (with a touch of common sense) called “Bayesianism”. That's what Silver used to make his successful predictions, it's what great poker players use to win millions, and it's what insurance companies use to gamble on insuring your car, home, and health.
Okay, okay. I bet I know what you’re thinking. It's great that there are mathematicians out there to look into the future and predict elections, but so what? Why should I care?
The same mathematical skills that can be used to call an election can be used for your own personal life. Want to know whether you’ll be employed? What about hired for a dream-job? This sort of knowledge is very useful when deciding whether to save money or spend it on a vacation. In a way, every time you make a decision you’re making a bet with yourself. You’re saying “I bet this will work out better than the alternatives.”
Imagine that instead of betting on the outcome of an election, your friend says: "I bet you $100 that at the end of 2016 you will be unemployed." Does the bet still seem trivial? I’d wager there are plenty of areas where you would love to predict the future. Of course, it still might not be a good idea to actually bet with your friend for all the reasons we went over at the beginning. If you make that bet, your “friend” has a reason to try and get you fired, for example. But you don’t have to actually gamble for you to know whether taking the bet would be a good idea or not.
To succeed in life we need to predict the future, and in many ways we’re already good at it. For example, as you’re reading this, try to predict the word at the end of this… sentence. Did you do it? Our basic intuition is often pretty good at seeing what’s going to happen, and you don’t need any math to use that. But science has shown that there are areas where our intuitions are flawed, and we can do much better by using statistics and other mental tools.
Let me make another bet about what you’re thinking. You think math is hard. Perhaps you think that the sort of math that Silver and others use is beyond you? If it takes a lot of complex math to make good bets, maybe that's a good reason to not gamble!
Well, here’s the good news: it doesn't have to actually be hard! Things seem complicated right up until we understand them, and then they become simple. With practice, you have the power to become a prediction wizard like Silver. It takes work, but it’s also within your grasp. If you apply your skills towards your own life you can become better at avoiding surprises, making good decisions, and winning at life! The same techniques that are used to routinely predict elections can be applied to decide on the best place to live, whether to bike or drive to work, what to study in school, or even how to improve your relationships!
This is the first in a series of posts about learning to use statistics for everyday life. Don't worry, you don't have to already know any math to be able to follow along and gain skills here. As long as you can follow a system and use a calculator you can learn to predict the future! Join me next time as I begin to explain things in more detail by talking about alternate universes, and learn how to win at life by betting.
What do you think?
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