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November 3, 2008 | 11 Comments

“Beware of geeks bearing formulas”

Those are the words of Warren Buffet, who warned of the coming credit crisis. Buffet—one of the very few—had little faith in the “complicated, computer-drive models systems that many financial giants relay on to minimize risk.”

Reader Dan Hughes reminds us of this article in today’s Wall Street Journal, which looks at why AIG did so miserably.

AIG built a lot of models which attempted to quantify risk and uncertainty in their financial instruments. They, like many other firms, tried to verify how well these models did, but they only did so on the very data that was used to build the models.

Now, if you are a regular reader of this blog, you will know that we often talk about how easy it is to build a model to fit any set of data. In fact, with today’s computing power, doing so is only a matter of investing a small amount of time.

But while a model fitting the data that was used to build it is necessary condition for that model to work in reality, it is not a sufficient condition. Any model must also be tried on data that was not used—in any way—to build it.

What happened at AIG, and at other financial houses, was that events occurred which were not anticipated or that had not happened before. Meaning, in short, that the models in which so many had so much faith, did not work in reality.

There is only one true measure of a model’s value: whether or not it works. That it is theoretically sound, or that it uses pleasantly arcane and inaccessible mathematics, or that it matches our desires, or that “only PhDs can understand” it are all very nice things, but they are none of them necessary. Many complex models which are in use are loved and trusted because of these things, but they should not be. They should only be valued to the extent that they accurately quantify the uncertainty of the real-life stuff that happens (climate models anyone?).

What the AIG models failed to account for were the “unknown unknowns”—to use Donald Rumsfeld’s much maligned quotation. They did not quantify the uncertainty of events which they did not know about. They thought that the models quantified the uncertainty of every possible thing that would happen, but of course they did not. Meaning that they were overconfident.

AIG’s failure is yet another in a long series of lessons that the more complex the situation, the less certain we should be.

(A subscription is required to read the full WSJ article.)

November 2, 2008 | No comments

Signed copies: update

I’ll be placing the order for the books tomorrow (Monday) morning. I’ll order a few more in case anybody else orders a signed copy. I imagine I’ll have the books by the end of the week, at which time I’ll mail them out. Look for updates here. Naturally, everybody who ordered will get an email.

Thanks for your support everybody!

October 31, 2008 | 15 Comments

Breaking the Law of Averages: Real-Life Probability and Statistics in Plain English

It is finally done!

Breaking the Law of Averages

You may order directly from the publisher here1. The book will also be available on Amazon, Barnes and Noble, etc. in about a month. I’ll update this post with the links when the book is in the distribution channels. Order as many copies as humanely possible.

Signed copies
I have had several requests for signed copies. I’ll be happy to do this for people. If you want a signed book, please email me at matt@wmbriggs.com. Please use “SIGNED COPY” as a subject line, and include your address in the body of the email. I’ll buy a few books from the publisher and then re-ship them out to people who want a copy. The charge will be the same as the publisher’s plus the same as they charge for Media Mail shipping and handling ($5.90), plus $1.15 cents (to cover tax). This makes the cost an even US$32.00. Payment will be arranged through PayPal (apparently, you don’t have to have an account to pay this way). I’ll send those who email me a PayPal “Request for Payment”; after that is received, I’ll ship the book (anywhere in the world).

Because I first have to order copies, sign them and then mail them out, it will of course take longer for you to get your book. I will wait a couple of days to see how many people email so I have a rough idea of how many books I should order.

I have two permanent places for news of the book:

  1. My books tab (see upper right of screen): general news and information
  2. Code page: free R code examples, erratum, links to papers, data, etc.

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Why is this book different?

Statistics has traditionally been taught decade after decade in a fashion that is long outdated. This book presents a brand new way of understanding probability and statistics at the introductory level. The approach taken does not require mindless memorization. There is very little math, and what there is requires nothing beyond multiplication and division. This book takes busy work out of standard statistics and puts insight back in.

Preface excerpt:

The regular readers of my blog, where parts of this book previewed piece by piece, provided razor sharp editing and keen questioning and kept me from making major blunders. So thanks to (screen names) Mike D, JH, Harvey, Joy, Noahpoah, Harry G, Bernie, Lucia, Luis Dias, Noblesse Oblige, Charlie (Colorado), Dan Hughes, Mr C Physics, Jinnah Mohammed, Ari, Steve Hempell, Wade Michaels, Raphael, TCO, Sylvain, Schnoerkelmanon, and many others (sorry if I left you out!). Any mistakes left are obviously their fault.

What’s next?
I use the book in my own classes, of course, and a few other professors have been either using a draft or have expressed interest in the book for their classes. If, by some miracle, the book becomes popular, I’ll start working on a “Answers to Selected Exercises” or, given that I get substantial comments from actual class use, a Second Edition. But that is all in the far, far future.

If you are a professor of a statistics class and want to chat about the book, send me an email at matt@wmbriggs.com and we can set up a time to talk. I have had great success with this approach for beginning students and can let you know how I run the class. Some guidelines are also given in the Preface.

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1The cover art looks terrible on the publisher’s page. They have scaled it down from an enormous PDF to a small JPEG and it is pixelated. It looks great when printed, however.

October 30, 2008 | 9 Comments

“Time to Die” Samsung cell phone message

I have a Samsung SGH-A707 cell phone. One of the free ones from AT&T/Cingular for signing a contract.

It is a piece of junk and I can’t recommend it. But that is neither here nor there. What is strange is the message I sometimes get on the phone.

It’s Halloween and the message is spooky. What happens is the phone gives one short vibration and then the words “Time To Die” flash on the screen.

Then the phone dies. It usually revivifies itself. It is dead yet not dead. It is an undead phone.

I have Googled this, but haven’t seen anybody else reporting it.

Could be one of the software designers was a Bladerunner fan.

Or it could be that my phone is possessed.