Did I just get scammed?

A stockbroker sends a mail to you every week for 10 weeks predicting whether a certain stock will go up or down, and predicts it correctly for every single one.  Will you trust him?  I think a majority of people would, and that’s because they would inadvertently think of the low chance of him being correct if he did not have some powerful skill.  Well think again, because only a little probability is underneath this trick, which is called the Baltimore Stockbroker Scam.

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Ok let’s say the guy sends letters to 10,240 people, 5,120 of which say that a certain stock is headed upwards, and the other half saying that its headed downwards.  We know one of these two situations is going to occur, and let’s just assume that the likelihood of either one is 1/2, which is quite a close assumption in the random stock market.  So at the end of the week, this man sees what happens to the stock, and then sends letters to the 5,120 people who received the letters which turned out to be correct, and carries out the same procedure, sending half and half different outcomes.  And this goes on and on, until at the very end, only 10 people are left, but all of whom are under the impression that this man has some intrinsic power of prescience, and yet all he did was employ a few benefits of a large base and a little probability.  Hmm… I wonder what else I got tricked into…

 

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