nomic Review 10 (February, 1969), pp. 1-21; James H. Lorie and Mary T. Hamilton, The Stock Market: Theories and Evidence (Homewood, Illinois: Dow Jones-Irwin, 1973), pp. 17Iff.

12. Ray Ball and Phillip Brown, "An Empirical Evaluation of Accounting Income Numbers," / of Accounting Research 6 (Fall, 1968), pp. 159-178.

13. Here the efficient market theorists acknowledge a paradox. Since it is fundamental analysis that is largely responsible for keeping markets efficient, if enough practitioners believed the efficient market hypothesis and stopped their analytic efforts, markets might well become inefficient.

14. Daniel Seligman, "Can you beat the stock market?," Fortune, December 26, 1983, p. 82.

15. James H. Lorie and Victor Niederhoffer, "Predictive and Statistical Properties of Insider Trading," Joumal of Law and Economics 11 (April, 1968), pp. 35-53.

16. Eugene F. Fama, "Efficient Capital Markets: A Review of the Theory and Empirical Work," Joumal ofFinance 25 (May 1970), pp. 383-417.

17. Eugene F. Fama, "Efficient Markets: W."Journal of Finance 46 (December, 1991), pp. 1575-1617.

18. Ibid

19. Ibid

20. There are a number of precise ratios to determine risk. The most commonly used is the Sharpe-Treynor Index. If a portfolio outperformed tiie market or provided an equal return with lower risk, it is deemed to have displayed superior performance. The capital asset pricing model (Markowitz-Sharpe-Lintner-Mossin theory) has become predominant on Wall SU-eet today. The tiieory or parts of it are used in most important aspects of investing; the average reader may be only vaguely aware of it, if at all.

21. Daniel Seligman, "Can You Beat tiie Stock Market?," Fortune, December 26, 1983, p. 82.

CHAPTER 4 Dangerous Forecasts

1. Christopher Cerf and Walter Navasky, The Experts Speak (New York: Pan-tiieon, 1984), p. 203.

2. Ibid., p. 116.

3. Ibid, p. 115.

4. Ibid., p. 152.

5. Ibid

6. Ibid, p. 155.

7. Ibid

8. Ibid, p. 157.

9. Ibid., p. 159.

10. Ibid., p. 175.

11. Ibid

12. Ibid., p. 167.

13. Ibid

14. Ibid., p. 183.

15. Ibid.,. 182.

16. Ibid

17. p. 186.

18. Ibid.

19. / ., p. 206.

20. Ibid

21. Ibid., p. 228.

22. p. 207.

23. Ibid., p. 208.

24. Ibid., p. 215.

25. Ibid

26. p. 52.

27. "Here Comes 1970," Wall Street Joumal, September 30, 1969, p. 1.

28. Floyd Norris, "The Fed Will Act, But Does It Matter?," New York Times, September 22, 1996, secdon 3, p. 1.

29. Herbert Simon, Models of Man: Social and Rational (New York: Wiley, 1970).

30. Ibid

31. P. E. Meehl, Clinical Versus Statistical Predictions: A Theoretical Analysis and Review of the Literature (Minneapolis: University of Minnesota Press, 1954); Robyn Dawes and Bernard Corrigan, "Linear Models in Decision Making," Psychological Bulletin 81, (1974), pp. 95-106.

32. Stewart Oskamp, "Overconfidence in Case Study Judgments," Joumal of Consulting Psychology 29 (1965), pp. 261, 265.

33. L. S. Garland, "The Problem of Observable Error," Bulletin of the New York Academy of Medicine 36 (1960); Hans Ehas, "Three-Dimensional Structure Idendfied from Single Secdons," Science 174 (December, 1971), pp. 993-1000.

34. Harry Bakwin, "Pseudodoxia Pediatricia," New England Joumal of Medicine 232 (1945), pp. 691-697.

35. P. J. Hoffman, P. Slovic, and L. G. Rorer, "An Analysis of Variance Model for the Assessment of Configural Cue Utilization in Clinical Judgment," Psychological Bulletin 69 (1968), pp. 338-49.

36. These can combine into 15 possible two-way interactions, 20 possible diree-way interactions, 15 possible four-way interactions, 6 possible five-way interactions, and 1 six-way interaction.

37. L. G. Rorer, P J. Hoffman, B. D. Dickman, and P Slovic, "Configural Judgments Revealed," Proceedings ofthe 75th Annual Convention ofthe American Psychological Association 2 (Washington, D.C: American Psychological Association, 1967), pp. 195-196.

38. Lewis Goldberg, "Simple Models or Simple Processes? Some Research on Clinical Judgments," American Psychologist 23 (1968), pp. 338-349.

39. Paul Slovic, "Analyzing the Expert Judge: A Descriptive Study of a Stockbrokers Decision Processes," Joumal of Applied Psychology 53 (August, 1969), pp. 225-263; R Slovic, D. Fleissner and W. S. Bauman, "Analyzing the Use ofinformation in Investment Decision Making: A Methodological Proposal," Joumal of Business 45, no. 2 (1972), pp. 283-301.

40. Lewis Goldberg, op. cit.

41. Paul Slovic, "Behavioral Problems Adhering to a Decision Policy," IGRF Speech, May 1973.

42. Dale Griffin and Amos Tversky, "The Weighing of Evidence and the Determinants of Confidence," Cognitive Psychology 24 (1992), pp. 411-435; and S. Lichtenstein and B. Fischhoff, "Do Those Who Know More Also Kjiow More About How Much They Know?, The Calibration of Probability Judgments," Organizational Behavior and Human Performance 20 (1977), pp. 159-183.

43. W. Wagenaar and G. Keren, "Does die Expert Know? The Reliability of Predictions and Confidence Ratings of Experts," in E. HoUnagel, G. Maneini, and D. Woods (eds.). Intelligent Decision Support in Process Environments (Berlin: Springer, 1986), pp. 87-107.

44. Stewart Oskamp, op. cit.

45. L. B. Lusted, A Study ofthe Efficacy of Diagnostic Radiology Procedures: Final Report on Diagnostic Efficacy (Chicago: Efficacy Study Committee of the American College of Radiology, 1977).

46. J. B. Kidd, "The Utilization of Subjective Probabilities in Production Planning," Acta Psychologica 34 (1970), pp. 338-347.

47. M. Neal and M. Bazerman, Cognition and Rationality in Negotiation (New York: The Free Press, 1990).

48. C.A.S. Stael von Holstein, "Probabilistic Forecasting: An Experiment Related to the Stock Market," Organizational Behavior and Human -mance 8 (1972), pp. 139-58.

49. S. Lichtenstein, B. Fischhoff, and L. Phillips, "Calibration of Probabilities: The State of tiie Art to 1980," in K. Kahneman, P. Slovic, and A. Tversky (eds.), Judgment Under Uncertainty: Heuristics and Biases (Cambridge: Cambridge University Press, 1982).

50. G. Keren, "Facing Uncertainty in the Game of Bridge: A Calibration Study," Organizational Behavior and Human Decision Processes 39 (1987), pp. 98-114; and D. Hausch, W. Ziemba, and M. Rubenstein, "Efficiency of the Market for Racetrack Betting," Management Sciences 27 (1981), pp. 1435-52.

51. J. Frank Yates, Judgment and Decision Making (Englewood Cliffs, NJ: Prentice-Hall, 1990).

52. Wall Street Transcript, September 23, 1974.

53. The belief tiiat all paranoid patients accentuate certain characteristics in their drawings belongs in the category of psychologists old wives tales.

54. L. Chapman and J. P. Chapman, "Genesis of Popular but Erroneous Psy-chodiagnostic Observations," Journal of Abnormal Psychology (1967), pp.