Jensen's Inequality as an Intuition Tool

Kris Abdelmessih discusses Jensen's Inequality to differentiate between linear and non-linear phenomena. The article explains how our intuition for average input-output mappings fails with non-linear functions, particularly convex or concave, using accessible examples like dice games and traffic patterns to illustrate misunderstandings in real-world predictions.

• Jensen's Inequality is a mathematical tool for decision making.
• It highlights the bias in predictions with non-linear functions.
• Convex functions lead to underestimation of an average output.
• Concave functions result in overestimation of an average output.
• Real-world applications include traffic, options pricing, and investing.