Posts filed under “Mathematics”

Enjoy Black Friday But Ignore NRF Surveys

Thanksgiving is but a few days away. We celebrate by the giving of thanks for whatever bounty has come your way. It is a warm and wonderful holiday full of family and tryptophan and good cheer.

Black Friday, the day after turkey day, is the official kick off of the season I like to call “Shopmas.” The media will have blanket coverage of all things retail. The intense focus with be a potent combination of PR hype and wishful thinking that if history holds will be entirely wrong.

The annual fabrication of seasonal retail sales data is an American holiday tradition.  Sometime over the next week, you can expect to see/read/hear the following lie: “Retail sales over the holiday weekend were surprisingly strong, up XX percent from last year. This bodes well for the upcoming holiday shopping season.”

If this were written accurately, it would instead read something like this: “We don’t know how strong Black Friday Sales were just yet, and wont for a few days. We don’t know how this holiday retail season will stack up against last year’s; we certainly haven’t the foggiest clue as to how the rest of the holiday season will go.”

This has been a pet peeve of mine for too many years to count; see the “previously” list at end.

There are several perpetrators of this annual fraud, but the biggest one is the National Retail Federation. Each year, it commissions a Holiday Consumer Intentions and Actions Survey. It is, at best, utterly worthless; at worst, it is a misleading, money-losing slice of PR propaganda, mindlessly parroted by lazy journalists who should be required to have the word “innumerate” tattooed on their collective foreheads. Or, if their religions do not allow tattoos, then their resumes.

Why is the annual exercise worthless?

Simply stated, the methodology employed by the NRF survey is defective. What happens is that people are stopped heading into a mall, asked how much they spent last year, and how much they plan on spending this year. That increase is how much of the press will misreport sales for the upcoming holiday season.

Why is this defective? The surveys bear no correlation relative to actual future retail sales. The conclusions reached (and repeated ad nauseum) are not supported by the data.

There are several reasons for this: First, people have no idea what they spent last year. No clue whatsoever. A surveyor stops someone on the way into a mall or other retail locale, asks them a few questions, the answers to which range between wild guesses and complete fabrications.

If you doubt what I am telling you, write down in the next 30 seconds what you personally spent last holiday season on all gift purchases. Note that I have given you about 25 seconds longer than most people spend coming up with an answer to the survey questions. Now take a look at your checking account, credit card and Amex statements for November and December. How close did you come? Yeah, I thought so.

Now you know the baseline number is off considerably. Let’s look at the next step: Asking people to forecast their own spending. There is a treasure trove of academic research on the subject, which is incontrovertible. It proves beyond any doubt that You Humans have no idea what you will do in the future. Forget forecasting gross domestic product or nonfarm payrolls next year, shoppers have no idea what they are going to spend next week, let alone the holiday season.

Why is this? We have learned through our study of human psychology that surveys actually query what people believe they will do. In other words, what you learn is what it is they imagine their future behavior might be. History repeatedly teaches us there is no correlation between our expectations and our actual actions. If you doubt that, consider the annual resolutions made each January: We all want to stop smoking, lose weight, save more for retirement, get in shape. Go to any gym and see how busy treadmills and exercycles are each January. By mid-February, they are forlorn and lonely exercise machines. That reflects the chasm between intentions and action.

Indeed, that’s how we see this play out in the real world. The track records of these surveys are awful. In 2005, the NRF forecast a 22 percent increase in holiday shopping gains for the Thanksgiving weekend. Full holiday retail sales were up just 1 percent. In 2006, it was 18.9 percent sales increase, versus less than 5 percent actual gains. In 2007, a 4 percent gain was actually a 0.4 percent drop. NRF forecasts for 2008 were even worse, 2.2 percent sales gain versus a drop of 6 percent.

But nothing compares to the NRF’s 2009 Holiday Consumer Intentions and Actions Survey for holiday shopping — it forecast a stunning 43 percent fall versus actual sales, which were up about 3 percent.

All told, this exercise a poorly conceived act of PR frippery, with no correlation to actual retail sales, and even less to corporate profits. Journalists should explain it intelligently, explaining how little these surveys actually correlate to increase in sales.

Investors who don’t enjoy losing money should ignore the media coverage of these misleading, inaccurate surveys with extreme prejudice.

 

Previously:
Did Black Friday save the season? Beware the retail hype. (Washington Post, Dec. 4, 2011)

Retail Sales Disappoint on False Black Friday Reports (Dec. 13th, 2011)

No, Black Friday Sales Were Not Up 16% (not even 6%) (Nov. 28th, 2011)

Entering the Holiday Shopping Season (Beware Surveys!) (Oct. 28th, 2009)

Spinning Black Friday Retail Sales (Dec. 1, 2008)

Repeat After Me: Spending Surveys Are Meaningless (Oct. 2007)

More Bad Data from the NRF? (Nov. 2006)

Holiday Sales Numbers Don’t Add Up (Dec. 1, 2005)

 

 

Category: Bad Math, Consumer Spending, Really, really bad calls

Benoît Mandelbrot, Father of Fractals

IBM and http://IBMblr.Tumblr.com celebrate the life of Benoit B. Mandelbrot, IBM Fellow Emeritus and Fractal Pioneer. In this final interview shot by filmmaker Erol Morris, Mandelbrot shares his love for mathematics and how it led him to his wondrous discovery of fractals. His work lives on today in many innovations in science, design, telecommunications, medicine, renewable energy, film (special effects), gaming (computer graphics) and more.

Category: Mathematics, Quantitative, Video

The Beauty of Mathematics

“Mathematics, rightly viewed, possesses not only truth, but supreme beauty — a beauty cold and austere, without the gorgeous trappings of painting or music.” —Bertrand Russell   BEAUTY OF MATHEMATICS from PARACHUTES.TV on Vimeo.

Category: Mathematics, Weekend

About Our “Spending Problem” (Revisited)

@TBPInvictus here It’s a well established fact that the Obama administration has been spending like a drunken sailor since the day he was inaugurated. I first wrote about his spendthrift ways here, toward the end of 2010 (has it already been three years?). Some time has now passed, so how’s it going? Let’s take another…Read More

Category: Bad Math, Current Affairs, Data Analysis, Economy, Really, really bad calls

What Do Hedge Funds Spend On Regulatory Compliance?

Every now and then, I read an article that is factually accurate, technically correct — and utterly misleading. Items like this are “accurate but false” as they leave the reader with an impression of something that is incorrect. Because the world is nuanced and not black and white, the sum of many facts, statistics and…Read More

Category: Bad Math, Hedge Funds, Regulation

Tax Rates, Inequality, and US Deficits

Its Friday, after what was for me a long and annoying 17 days. But the shutdown is over, US markets are at all time highs, and Bob Shiller got his Nobel (more on this tomorrow). You might think that I would be at peace with the current state of the world, but life is never…Read More

Category: Economy, Mathematics, Philosophy, Taxes and Policy

The Truth About the Deficit

Yesterday, I was on Pete Dominick’s Sirius XM Satellite radio show (audio below). A caller asked about how to close the deficit. His comments revealed that his concern about the deficit was merely a ruse, a tool to be used to achieve very different goals. If you are truly concerned about deficit, then what you…Read More

Category: Mathematics, Politics, Really, really bad calls

What makes us bad investors?

What makes us bad investors? from morganhousel by morganhousel on Jul 14, 2013

Category: Investing, Mathematics, Psychology, Think Tank

Twelve Musical Tones

Vi Hart, explores the nature of randomness and pattern, using Stravinsky’s 12-tone music as a starting-point and rocketing through constellations, the nature of reality. Twelve Tones hat tip boingboing

Category: Mathematics, Music, Weekend

Does Math Exist or Is It a Human Creation?

Math is invisible. Unlike physics, chemistry, and biology we can’t see it, smell it, or even directly observe it in the universe. And so that has made a lot of really smart people ask, does it actually even EXIST?!?! Similar to the tree falling in the forest, there are people who believe that if no person existed to count, math wouldn’t be around . .at ALL!!!! But is this true? Do we live in a mathless universe? Or if math is a real entity that exists, are there formulas and mathematical concepts out there in the universe that are undiscovered? Or is it all fiction? Whew!! So many questions, so many theories… watch the episode and let us know what you think!

Is Math a Feature of the Universe or a Feature of Human Creation? | Idea Channel | PBS

Hat tip boingboing

Category: Mathematics, Philosophy, Video