Overcoming Bias

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Sometimes Learning Is Very Slow

www.overcomingbias.com

Sometimes Learning Is Very Slow

Robin Hanson
Aug 17, 2007
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Sometimes Learning Is Very Slow

www.overcomingbias.com

Our best finance theories predict riskier assets gain high returns.  From the July Journal of Financial Economics:

Previous studies typically find a statistically insignificant relation between the market risk premium and its expected volatility. … {But] even 100 years of data constitute a small sample … Using the nearly two century history of U.S. equity market returns [1802-2003] … I estimate a positive and statistically significant risk return tradeoff.

Remember this whenever someone says that your theory doesn’t seem to give significant results on ten years of data – sometimes you just need a lot more data.

Added: I should have been more critical of this paper.  See good comments by Eric Falkenstein. 

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Sometimes Learning Is Very Slow

www.overcomingbias.com
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