Statistics for Badgers

I just discovered BadgerStats,  an organization that presents data driven commentary on Wisconsin's economy, education, business climate, and other topics.

http://badgerstat.org/2011/jobs/

Our work is motivated by our belief that:

• Many Wisconsinites want credible, nonpartisan information about their state, including insights into what’s working and what’s not, and about our state’s challenges and opportunities.

• Meeting Wisconsin’s challenges will require government that is more efficient andeffective, producing better results for citizens and better value for taxpayers. 

• Wisconsin government, at the state and local levels, would benefit from a more performance-oriented culture that focuses on results and uses performance data to manage.

• Every citizen deserves to know how their government is doing in key policy areas. Toward that end, every level of government (and every agency) should provide, online for citizens, a set of clear, timely, and accurate performance measures and goals. 

• Wisconsin’s future depends on an informed citizenry, since meeting our state’s challenges — and seizing our opportunities — will require people of all political stripes to come together in informed public dialogue to help chart our future.

Speaking as a data-guy, I appreciate and encourage this sort of information oriented reporting. This could become Wisconsin's own version of 538.com.

http://badgerstat.org/

Depressing News for Grad Students

From Discoblog:

Alien Math Shows Why Grad Student Doesn’t Have a Girlfriend

 PS: This is old news to most grad students.

Mathematics and Magicians, the Rant Continues

An old friend of mine just wrote in reply my Mathematics and Magicians post yesterday. He couldn’t post his comments directly to the blog site, so he emailed them to me. With his permission, I present it to you here in full (I did add the first two links for reference):

Hey Dan

I read one of your blog entries, and I got so worked up that I furiously banged out a reply. Then the silly thing wouldn't let me post it, probably because it was too long. So I'll just email it to you. You can ignore it or delete it or post it yourself....but at least I will have had my say! And for the record, I'm griping with the author you cite, not you...so we're on the same side.

Here's my reply to your entry "Magicians and Mathematicians":

Having worked in the financial arena for about 15 years now, I'm here to tell you that the term "human side of finance" is as big of an oxymoron as "sanitary landfill" or "military intelligence" or "compassionate conservative". If you want that touchy-feely crap, go down the hall to HR and cry them a river. The finance people have work to do, thank you very much.

All businesses which are traded in the public markets exist for one purpose: the pursuit of profit for shareholders. How the "quants" apply their profit mandate to their daily tasks is merely a matter of corporate policy. It's shockingly naive to assume that anyone in a financial capacity would ever "appreciate...the unintended consequences" of their individual actions or even give a hoot for that matter.

Sounds like a bunch of academic rubbish to me. It would also be foolish to subscribe to the notion that this is a relatively new phenomenon (ref. the managers with history degrees – as if to say “back in the good old days”). The Spanish conquistadors directly or indirectly caused the deaths of millions in the pursuit of profit (unbridled imperialism). The Bolsheviks made a naked power grab in the early 20th century and wreaked 70 years of financial, ecological, and social havoc, all under the pretense of making a better life for the masses (rampant socialism/communism). Wall Street capitalists speculated themselves into quite a mess in 1929 (runaway capitalism).

Greed is an intrinsic part of human nature, and unfortunately greed is also part of the group mentality of "quants" which are otherwise known as "people". It seems the article's author is the one who has lost his "human side".

P.S. I resent being identified as a mere "quant", which sounds suspiciously like “quantum”, especially since the definition of THAT word would be even more dehumanizing.

http://dictionary.reference.com/browse/quanta


Ahh........I feel better now.......so it's back to clearing general ledger errors for me!

Rick

I will have to investigate if there is a limit to comment length, but after reading Rick's reply I rather suspect that it was a hardware failure instead (his keyboard probably melted!).

Magicians and Mathematicians

[via Tao of Gaming]
Paul Wilmott writes about Magicians And Mathematicians, and I might have a bone to pick.

Quantitative finance and risk management are not just about the numbers. Numbers play a part, but so does the human side of the business. When analyzing risk it is important to be able to think creatively about scenarios. Unfortunately the training that most quants get seems to actively discourage creativity.

I certainly agree,

This is really a question about whether modern risk managers are capable of thinking beyond maths and formulas. Do they appreciate the human side of finance, the herding behaviour of people, the unintended consequences, what I think of as all the fun stuff. And this is a nice question because it very quickly sorts out different types of thinkers.

and

Once you start thinking outside the box of mathematical theories the possibilities are endless. And although a knowledge of advanced mathematics is important in modern finance I do rather miss the days when banking was populated by managers with degrees in History and who'd been leaders of the school debating team. A lot of mathematics is no substitute for a little bit of commonsense and an open mind.

How can we get quants and risk managers to think beyond the mathematics? I'm afraid I don't think we can, the way the majority of them are currently educated.

[The emphasis is mine. ]

I'm OK with the part about training the quants to understand these things, and it's somewhat criminal that they were not required to understand these things before being allowed to play in that particular sandbox, thus precipitating a financial meltdown. However, this in no way removes the problem from the "box" of mathematics. It's still math, but it has to be applied in a consistent and conservative way, and founded in a basic knowledge of the subject area. -- And now I'm going to contradict my self -- It is more than math, it is statistics. It was once suggested to me that the difference between math and statistics is the manner of application (of stats), which might fairly be described as an art. A herd of quants well versed in the application of statistics ought to have realized the most obvious error (dependencies among risks).
That there is an essential art to understanding financial markets I do not doubt. It's too bad so many people forgot, or were blinded to that fact by greed.

[UPDATE: The rant continues here!]

THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS

Edge has an essay by Nassim Nicholas Taleb, author of The Black Swan.

---THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS ---

Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the "logic of science"; it is the instrument of risk-taking; it is the applied tools of epistemology; you can't be a modern intellectual and not think probabilistically—but... let's not be suckers. The problem is much more complicated than it seems to the casual, mechanistic user who picked it up in graduate school. Statistics can fool you. In fact it is fooling your government right now. It can even bankrupt the system (let's face it: use of probabilistic methods for the estimation of risks did just blow up the banking system).

Indeed! Woe unto those who assume all events are independent, and distribution well known. Click through to Edge for more. There is a technical appendix too.