Data

We are confronted with a lot of data constantly these days.  A lot of it is put out there to prove points.  There is a lot of confirmation bias in sharing data and even in collecting data.  The issues around the data can be controversial. Here is an example:

Here is another one. You have to look at all the data and how the data was collected before you can reach an opinion. Anderson Cooper of CNN faked a news story the other day for dramatic effect. Instead of standing on the flooded road, he put waders on and stood in the ditch at the side of the road so it would look like more water was there than there really was. Not only that, Anderson Cooper isn’t a tall man, so the scale is off a bit. Changing scale changes the appearance of data. Look at this video done by Joanna Stern of the WSJ on the size of the new iPhone.

As a floor trader and when I got my MBA at Booth, you were trained to call bullshit on almost all data that you confronted.  On the floor, we didn’t believe anything and often it paid big to be a contrarian.  When everyone was selling, buy.  When all were bulled up, sell.

I think the series, The Numbers Game, that Russ Roberts of EconTalk is running on economic data is excellent and will help you wrap your head around how data is presented.  His talk on how household income is calculated is an in depth look at how different people with different agendas smooth data to fit the story they want to tell.

The nice thing about the internet is that we can easily call bullshit on things that years ago might be taken for gospel.  For example, most people think that 50% of all marriages end in divorce.  It’s been repeated so many times people take it as a religious fact.  However, if you dig through the numbers and stratify them in meaningful ways, the 50% number doesn’t hold up.  For example, if both spouses graduated from college they are far less likely to get a divorce than if they didn’t go to college.

One of the characteristics of being a good floor trader that translates to venture capital is the ability to look at data and call bullshit.  The other day, I heard a lot of folks tell a crowd that there was no bubble in crypto.  Yet, when I look at the valuation of crypto companies versus other companies, there almost certainly is a bubble in crypto company valuation.  At least the ones I see which I admit is a small sample size compared to the entire universe of crypto companies.

The next time someone tosses some “facts” at you, look through the numbers.