Noise to Signal Ratio in Decision-making


 
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Noise to Signal Ratio in Decision-making
Jos Nieland, Teacher, Netherlands

In Taleb's book "Fooled by Randomness", noise versus signal plays an important role.
If you are making complex decisions, exposure to too much data can cause severe side-effects.
Nowadays there's lots of data, because of the blessings of computers and connectivity, but the share of non-relevant data increases as one gets more immersed into it.
Beware of data overloadData can be very toxic in large quantities for decision-makers, even in moderate quantities. Note that the more frequently you look at data, the more noise you are likely to get (rather than the valuable part called the signal); hence the higher the 'noise to signal ratio'.
Say you look at stock price information on a yearly basis and that at this yearly frequency the ratio of signal to noise is about one to one (say half noise, half signal). That means about half of change... Register
 

 
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Jos Nieland
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