Fooled by Randomness

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The Gaussian and the Mandelbrotian

Chapter 16. The Bell Curve, That Great Intellectual Fraud

Not worth a pastis – Quételet’s error – The average man is a monster— Let’s deify it - Yes or No - Not so literary an experiment --

Forget everything you heard in college statistics or probability theory. If you never took a class, even better. Let us start from the very beginning.

THE GAUSSIAN AND THE MANDELBROTIAN

Figure 16 Last Ten Deutschemark bill representing Gauss and to his right a picture of the bell curve of Mediocristan. I was transiting through Frankfurt airport in December 2001, on my way between Olso and Zurich. I had time to kill at the airport and it was a great occasion for me to buy dark European chocolate, especially as I have managed to successfully convince myself that airport calories don’t count. The cashier handed me, among other things, a ten Deutschemark bill, an (illegal) scan of which can be seen in Figure x. The Deutschemark banknotes were going to be put out of circulation in a matter of days, as Europe was switching to the Euro. I kept it as a valedictory. Before the coming of the Euro, Europe had plenty of national currencies, which was good for printers, money changers, and, of course, currency traders like this (more or less) humble author. As I was eating my dark European chocolate and wistfully looking at the bill, I almost choked. I suddenly noticed, for the first time, that there was something curious. The bill bore the portrait of Karl Friedrich Gauss and the Gaussian “bell curve” smack on it. The striking irony is that the last possible object that can be linked to the German currency is precisely such a curve: the Reichsmark (as the currency was then called) went from four per dollar to four trillion per dollar in the space of a few years during the 1920s –an outcome that tells you that the bell curve is meaningless as a description of the randomness in currency fluctuations. All you need to reject the bell curve is...