Jul
22
Probability matching, from Big Al
July 22, 2024 |
Probability matching is an interesting phenomena, a bit subtle as to trading.
Probability matching is a decision strategy in which predictions of class membership are proportional to the class base rates. Thus, if in the training set positive examples are observed 60% of the time, and negative examples are observed 40% of the time, then the observer using a probability-matching strategy will predict (for unlabeled examples) a class label of "positive" on 60% of instances, and a class label of "negative" on 40% of instances.
Andrew Lo takes a very deep dive into probability matching:
Evolutionary Foundations of Economic Behavior, Bounded Rationality, and Intelligence
Andrew W. Lo, Massachusetts Institute of Technology
Institute for Pure and Applied Mathematics, UCLA May 19, 2015
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