Statistics

More evidence that people are more sure than they should be

From Jerry Pournelle (What? You haven’t read Lucifer’s Hammer yet?) on how just about everybody making bets in the financial markets were wrong. This “everybody” includes very highly educated, extraordinarily well paid, respected, etc. etc., people.

One of my favorite lines, “Given incorrect models to work with, the computers continued to forecast profits right up to the crash.”

Another “As to what can be done, it may not matter. That is, it’s important what we do, but the chance that it will be done sanely and rationally is very small.” Of course, what we do will be pronounced as “the” thing to do. After all, the eventual plan, whatever it might be, will be made by experts.

Pournelle’s worry, as should be ours, is that the only thing that will happen is the creation of yet another big-government bureaucracy.

Pournelle’s Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people: those who work to further the actual goals of the organization, and those who work for the organization itself. Examples in education would be teachers who work and sacrifice to teach children, vs. union representative who work to protect any teacher including the most incompetent. The Iron Law states that in all cases, the second type of person will always gain control of the organization, and will always write the rules under which the organization functions.”

Ah, government bureaucracy. Is there anything experts at the government can’t fix? I know I can’t wait for the EPA to start regulating the “pollutant” CO2. They ought to figure a way to tie mortgages to global warming. Then things will really get better.

Yes, a disconnected rant today. All I know is that I have been prudent and actually have saved to buy a house, did not try to purchase anything I couldn’t afford, and now I will be asked to pay for the mistakes of all the experts and fools who brought this on.

In any government bailout, the first thing I would require is that any executive of the firms that are being helped would lose all of their personal assets. Every penny. Then I’d sue the traders and stockholders to recover more. I’d do all that before I started taking money from innocent civilians.

As it is, the executives from Fannie Mae, Lehman Brothers, etc., will all walk away very rich men. They will be rewarded.

And the government will continue to bloat.

Categories: Statistics

13 replies »

  1. Paul,

    I have never taken out a mortgage. I rent and always have. I have been saving to afford an apartment (here in Manhattan, this is an especially difficult task).

  2. How sure can one be of this statement? Being statistically challenged, I’d like some guidance. Based on the trend of .17/decade, it can be assumed it is referring to RSS. Do the two volcano events in the last 25 years skew the results?

    Thanks.

    AS the above graph demonstrates, 2008, so far, has been cooler than recent years, but is it unexpectedly cool? Does it call into question the established global warming trend of the lower troposphere as measured by satellites?

    No, as demonstrated below. The monthly deviations from the trend line are approximately normally distributed, i.e. a bell curve. So we can estimate the probability of temperatures falling within any specified range. The 2008 monthly data lies inside the expected range of errors about the warming trend: established by 30 years of satellite measurements.

    The coldest monthly anomolies in 2008 were January and May; these average global temperatures were just outside of 2 standard deviations from the mean expected value. Statistics tells us we should expect these unusually cool months to happen about 2.5% of the time. In the nearly 30 year history of monthly data that would be about 9 times; it has happened 5 times so far and most of these in the first half of the record. In other words, we were due for some months below the trend line with this magnitude or colder and we finally got them. In fact a few more in the next several years would be within expectation assuming the lower troposphere continues its warming at a 0.17C per decade average rate.

  3. There are so many statistically incorrect statements within those paragraphs that it is hard to know where to start. In fact, why bother? I mean really? Why bother?

    As a consulting statistician I almost never get a question that isn’t loaded. People need to take their load off. Ask me before the data is even collected, way back in the planning stages. Don’t even attempt data collection without a plan as to how to analyze it. And make sure that plan will answer the key questions of interest in a logical and scientific manner.

    Please don’t throw me bad data, poorly analyzed, and make me shoot it down. What am I, the Lone Ranger? And please shed the political biases, too. I’m afraid that no matter what I say, you will shoot the messenger and then go riot in the streets.

    Let us first quantify the REAL questions of interest. Unveil the agenda. And then decide if science and logical inference have anything to add to the process or not.

  4. I can’t recall this in complete detail, but here goes anyway.

    There are two groups of people in positions of leadership; (1) those who rule based on knowledge and (2) those who rule based on power. Success of the organizations under (1) are generally significantly greater than for those under (2).

    All bureaucracies fall under (2). Especially those organizations in which seniority is the first, foremost, and practically only guiding principle for advancement are doomed to failure.

    Except when they can count on bailouts using other people’s resources.

  5. As sure as the Second Law of Thermodynamics, there is the irreversible march toward bigger government, with its ever increasing concentration of power, and its attendant deprivation of liberties. The march is punctuated by wars and crises, each event producing a needed expansion to ward off whatever devils are at the door. This proceeds until collapse or revolution, whichever comes first. Then the process begins anew.

  6. JM,

    Please take the time to analyze the statements in MY previous post as the purpose of posting them here was for you to think about them.

    Regarding the paragraphs you presented, basically, garbage in garbage out. The data are not “known,” they are averaged estimates made from a smattering of uncontrolled observations using questionable methods. They have been massaged and reworked with certain ulterior purposes in mind. The analysis methods you cite, such as assuming normality and expressing 2 standard deviations as a 2.5% probability are simply wrong, false, error, mistakes. But the data are funky anyway.

    You desire some sort of “gotcha” conclusion. One way or the other, I don’t know. I am sorry, but statistics can’t solve your problem.

    Dig deep and think about what your key question of interest really is. Go the heart of your true desires. I am guessing that it has nothing to do with numbers or measurements. Be honest with yourself so you can be honest with me.

    And that’s the approach I take with all my clients. Psychology first, statistics second. Pare away the surface gloss and explore the true question of interest. It may be (usually is) that there is a much better way to approach the client’s real problem.

  7. “(J)ust about everybody making bets in the financial markets were wrong”. This can’t possibly be right. A bet (or a trade) is a transaction between two agents. If one loses, the other gains. Somebody must be getting rich.

  8. Mike D,
    I don’t need a psychologist, thank you.

    The data is based on RSS satellite global average land/ocean temperatures. It is known data.

    Please expound on your statement:
    “The analysis methods you cite, such as assuming normality and expressing 2 standard deviations as a 2.5% probability are simply wrong, false, error, mistakes. But the data are funky anyway.”

    And please, no more lectures, just real answers.

Leave a Reply

Your email address will not be published. Required fields are marked *