John Kay has an excellent piece in the FT about the limits of risk models. As he points out, they are no use for risks that they don’t model. In particular, if they are modelling financial risks, and are calibrated using recent data, they are no use at all for modelling major phase changes. For […] Read more
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So often, just one number is not only not enough, it’s positively misleading. We often see statistics quoted that, say, the average number of children per family is 1.8. First off, what sort of average? Mean, median or mode? It makes a difference. But really, the problem is that a mean (or median or mode) […] Read more
How many times have you seen a standard disclaimer about past performance not being a good guide to the future? And internally nodded wisely, thinking that of course it’s not, the disclaimer is there to warn less sophisticated people than you. How many times have you calibrated a model based on past performance? And recent […] Read more
Randall Munroe, over at xkcd, does some really funny cartoons, and is a physicist by training. Every week he answers a hypothetical question: this week it’s How much of the Earth’s currently-existing water has ever been turned into a soft drink at some point in its history? His answer, by the way, is “not much”. […] Read more
… but some are more wrong than others. It’s emerged that a risk calculator for cholesterol-related heart disease risk is giving some highly dubious results. So completely healthy people could start taking unnecessary drugs. It’s not clear if the problem is in the specification or the implementation: but either way, the results seem rather dubious. […] Read more
Tags: heart disease
Antonio Fatas has some interesting things to say about the reliance of economic models on implausible assumptions. All models rely on assumptions and economic models are known (and made fun of) for relying on very strong assumptions about rationality, perfect information,… Many of these assumptions are unrealistic but they are justified as a way to […] Read more