Posts filed under “Mathematics”
“All models are wrong; some are useful.” – George E. P. Box
The quote above comes from George Box. He was a brilliant statistician and professor, who thought long and hard about the use and misuse of statistics.
I was reminded of Box this weekend while watching the thrilling World Cup final between Germany and Argentina. (If you didn’t find Germany’s 1-0 win thrilling, that simply means you don’t understand soccer). From Goldman Sachs to fivethirtyeight, just about every major modeler with the temerity to forecast the outcome of the Cup got it wrong. Not merely wrong, but wildly so. Give credit to Macquarie for choosing Germany to win (me too!), but getting almost everything else wrong. (I did even worse).
There are trillions of dollars invested based on models. Many of the world’s biggest hedge funds, pension funds and foundations are highly dependent upon some form of modeling to put their capital to work. What does it say about the world of investing that nearly all of these folks in the business of modeling markets and economies were so far afield when they tried to predict the outcome of the Word Cup? I believe it is more than just a matter of sports being different from investing.
Chances are that when you think about math—which, for most of us, happens pretty infrequently—you don’t think of it in anything like the way that Jordan Ellenberg does. Ellenberg is a rare scholar who is both a math professor (at the University of Wisconsin-Madison) and a novelist. And in his fascinating new book, How Not to Be Wrong: The Power of Mathematical Thinking, he deploys analyses of poetry, politics, and even religion in a bold recasting of what math is in the first place.
For Ellenberg, the stuff you hated about math in high school isn’t the core of the thing. He’s emphatic that mathematics isn’t simply about the calculations involving, you know, numbers; rather, it’s a highly nuanced approach to solving problems that we all, unavoidably, encounter. Ellenberg’s chapters range from showing how mathematical thinking undermines many popular proofs for the existence of God (Paley’s design argument, Pascal’s wager), to explaining how math helps us understand why smoking causes lung cancer (contrary to claims by one early statistician who actually argued that the causation might be reversed—that lung cancer might cause smoking!).
On the show this week we talked to Ellenberg about his book, and math: why you’re probably thinking about it all wrong, and why it’s so powerful.
This episode also features a short interview with Tasneem Raja, author of the must-read new article “We Can Code It: Why computer literacy is key to winning the 21st century” in Mother Jones, and a discussion of new findings about autism and possibly how to stop it—by making brain cells better able to communicate with one another.
From Betsey Stevenson & Justin Wolfers, a short primer on separating lies from statistics: 1. Focus on how robust a finding is, meaning that different ways of looking at the evidence point to the same conclusion. Do the same patterns repeat in many data sets, in different countries, industries or eras? 2. Results that…Read More
This column is not about working too hard, or the dangers of high cholesterol, or lack of exercise. It is about a rash of suicides within the financial community. What this actually means is less certain than the reporting on it might imply. Yesterday, 47-year-old Edmund Reilly, a trader at the Vertical Group, jumped in…Read More
Category: Bad Math
Five years ago today, I made the luckiest market call of my career. A few details and some context first, than an explanation as to why this was so lucky. In 2005, I knew something was amiss in the global markets. The various metrics we track showed that credit had become a full on bubble,…Read More
One of the things that baffles me about people is how they completely misunderstand risk. Lots of my friends panic about things that have no real chance of killing them, but ignore the things that will. This can lead us to make irrational decisions, and sometimes irrational policy. What really will kill us? Watch and learn.
What Kills Us? How We Understand Risk.