Why optimizer curse

Thus, when comparing actual outcomes to value estimates, we should expect to be disappointed on average, not because of any inherent bias in the estimates themselves, but because of the optimization-based selection process. This curse may be a factor in creating skepticism in decision makers who review the results of an analysis.

We then propose the use of Bayesian methods to adjust value estimates. These Bayesian methods can be viewed as disciplined skepticism and provide a method for avoiding this postdecision disappointment. Search Search. Volume 67, Issue 11 November Volume 67, Issue 10 October Volume 67, Issue 9 September Volume 67, Issue 8 August Volume 67, Issue 7 July Volume 67, Issue 6 June Volume 67, Issue 5 May Volume 67, Issue 4 April Volume 67, Issue 3 March Volume 67, Issue 2 February Volume 67, Issue 1 January View PDF.

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Estimating the contributions of systematic and selection biases. Practically all firms pursue goals by selecting a portfolio of courses of action that consume resources. Yet, due to uncertainties such as unforeseen market developments, it may not be possible to … Expand. Highly Influenced. The surprising thing about Newtonian physics is not that it breaks down at a subatomic scale and at a cosmic scale. The surprising thing is that it is usually adequate for everything in between.

Most models do not scale up or down over anywhere near as many orders of magnitude as Euclidean geometry or Newtonian physics. If a dose-response curve, for example, is linear for observations in the range of 10 to milligrams, nobody in his right mind would expect the curve to remain linear for doses up to a kilogram. Chapman points out that regular people rarely make this kind of error. Usually, wrong-way reductions are motivated errors committed by people in fields like philosophy, theology, and cognitive science.

A wrong-way reduction is often an attempt to universalize an approach that works in a limited set of situations. I spent a lot of my childhood in evangelical, Christian communities. Many of my teachers and church leaders subscribed to the idea that the Bible was the literal, infallible word of God. Other parts of the Bible are consistent with that commandment. Is abortion OK? Should one continue dating a significant other? Start a business?

Intelligent and respected members of the community regularly turn to the Bible for advice and encourage you to do the same.

The idea that all uncertainty must be explainable in terms of probability is a wrong-way reduction. Getting more detailed, the idea that if one knows the probabilities and utilities of all outcomes, then she can always behave rationally in pursuit of her goals is a wrong-way reduction.

People have been saying versions of this for a long time. The term Knightian uncertainty is often used to distinguish quantifiable risk from unquantifiable uncertainty. Instead, real-world uncertainty falls on something like a spectrum. Probability is, as far as we know, an abstract mathematical concept. It can aid in describing and dealing with many types of uncertainty. To define it based on any imperfect real-world counterpart such as betting or long-run frequency makes about as much sense as defining a line in Euclidean space as the edge of a perfectly straight piece of metal, or as the space occupied by a very thin thread that is pulled taut.

Real-world models are important for the application of probability, and it makes a lot of sense to me that such an important concept has many different real-world analogies, none of which are perfect.