Archive for The Black Swan

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AMSI-SSAI Lectures #2-3

Posted in Books, pictures, Statistics, Travel, University life with tags , , , , , , , , , on July 18, 2012 by xi'an

The AMSI lecture at UNSW on ABC for model choice last Monday was very well-attended, with additional participants from other universities  like Newcastle connected through the grid, and Robert Kohn set a follow-up questions-and-answers session with local faculty and students. Interesting comments on pseudo-models and misspecified models… And new ideas for incoming Master projects. I am quite impressed by the School of Economics in the Australian School of Business and by the UNSW campus as a whole. (Maybe the more because a kind faculty who set me on my way there asked me from which part of England I was from!) This is the second econometrics department I visit this semester and I think we should beef up the interactions between stat and econ… (Maybe starting a Bayesian Econometric section at ISBA would help now that the Bayesian computation section has reached the critical level of support to be created!)

On Tuesday, I then took the train(s) to the University of Western Sydney, which allowed me to see much more of the greater Sydney than the (more privileged) area between downtown and Bondi! There were fewer peoples attending at UWS but video links with other campuses helped in reaching a critical level. Before returning to UNSW, I also managed to get a glimpse of one of Australia’s oldest buildings, a former girl orphanage built in 1813…

I must acknowledge some kind of “travel fatigue” syndrome at this stage of my trip, due both to a poor sleeping pattern and the constraints of staying a few days at a given place, with some difficulties to concentrate on deeper issues than planning the next move and not forgetting anything at the current one! I am thus looking forward the next fortnight in Monash University, Melbourne, where I am teaching a two-day course in addition to working with Gael Martin and giving a few seminars…

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Prix Le Monde Jeune Economiste 2011

Posted in Books, University life with tags , , , , on May 29, 2011 by xi'an

Each year, Le Monde nominates a French economist for its Jeune Economiste Prize. The past winners are

(Some of those recipients are or were researchers at CREST. And Elyès is my colleague in Paris-Dauphine. When he is not minister in Tunisia!) The 2011 winner is Xavier Gabaix, who is professor of economics at NUY. I know nothing of his research and of its impact on Economics, nor do I want to to criticise the 2011 prize in any respect, however in a fairly bland and uninformative interview with Le Monde, Xavier Gabaix focused on the Zipf laws (connected with the Benford law I mentioned a while ago about the Iranian elections):

Pour la théorie économique classique, les phénomènes économiques se distribuent selon une courbe de Gauss (en cloche), et la modélisation raisonne généralement à partir de moyennes, d’agrégats. Or, la recherche a montré que, dans des domaines très variés, la distribution des objets, par exemple par rang de taille pour les villes ou par fréquence d’occurrence pour les mots d’un texte, obéit à des lois mathématiques comme les lois de Zipf, du nom du linguiste qui les a mises en évidence. Dans un article de Nature paru en 2003 et écrit avec des physiciens, j’ai montré que la fréquence des baisses boursières atteignant certains seuils (10 %, 20 %, 30 %) obéissait à la même loi mathématique que la fréquence des séismes… L’observation du volume de transactions boursières, de la taille des firmes, des évolutions de la croissance, permet également de déceler de telles lois de distribution.

which google-translates as

In classical economic theory, economic phenomena are distributed according to a Gaussian (bell) distribution, and modeling reasons usually based on averages and aggregates. However, research has shown that in various fields, the distribution of objects, for example in the size ranks of cities or in the frequency of occurrence of words in a text, obeys mathematical laws such as the Zipf laws, named after the linguist who has identified them. In a Nature paper published in 2003 and written with physicists, I showed that the frequency of stock market declines reaching certain thresholds (10%, 20%, 30%) obey the same mathematical law as the frequency of earthquakes .. . The observation of the volume of stock transactions, the size of firms, changes in growth, can also identify such distributions.

This somehow reminds me of the criticisms on the normal/Gaussian distribution in Nassim Taleb’s (outrageous) Black Swan. I would think the same type of criticism applies here: The interview mentions the fact that a few actors have a considerable impact on financial markets. This kind of observation applies to  an extreme value phenomenon. hence a particularly-difficult-to-estimate statistical problem. Especially given the lack of stationarity on those financial markets…

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About induction, deduction, and transduction

Posted in Statistics with tags , , , , , , , on March 10, 2010 by xi'an

I have noticed a new posting by Ya’acov Ritov on arXiv that discusses what the limits of the scope of Statistics should be:

“The paper argues that a part of the current statistical discussion is not based on the standard firm foundations of the field. Among the examples we consider are prediction into the future, semi-supervised classification, and causality inference based on observational data.”

I do not have currently enough free time to read it at a detailed enough level to make a sensible comment, but this sounds like an interesting discussion! At this stage, I cannot decide whether this is yet again a point about model shifts or if there is a more fundamental issue at stake. (Thankfully, Popper is not mentioned! But Taleb is…) It seems however that the paper claims that prediction about a single object is not statistically valid:

“We believe that predicting the future, that is, predicting one most important future event, is not a statistical task.“

and thus that statistics requires a long sequence of experiments to achieve validation, hence falling upon a frequentist justification…

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Numbers rule your world

Posted in Books, Statistics with tags , , , , , , , , , , , on February 22, 2010 by xi'an

Andrew Gelman gave me a copy of the recent book Numbers rule your world by Kaiser Fung, along with the comment that it was a nice book but not for us. I spend my “lazy Sunday” morning reading the book at the breakfast table and agree with Andrew on his assessment. (waiting for the  incoming blog review!). Numbers rule your world is unlikely to bring enlightment to professional or academic statisticians, but it provides a nice and soft introduction to the use of statistics in everyday’s life, to the point I would encourage my second and third year students to read it. It covers a few topics that are central to Statistics via ten newspaper-ised stories that make for a very light read, but nonetheless make the point. The themes in Numbers rule your world are

  • variability matters more than average, as illustrated by queuing phenomena;
  • correlation is not causation, but is often good enough to uncover patterns, as illustrated by epidemiology and credit scoring;
  • Simpson’s paradox explains for apparent bias in group differences, as illustrated by SAT score differences between black students and white students;
  • false positives and false negatives have different impacts on the error (here comes Bayes theorem!), depending on population sizes and settings, as illustrated by the (great!) case of cheating athletes and polygraph tests (with a reference to Steve Fienberg‘s work);
  • extreme events may exhibit causes, or not, as illustrated by a cheating lottery case (involving Jeff Rosenthal as the expert, not the cheater!) and a series of air crashes.

The overall tone of Numbers rule your world is pleasant and engaging, at the other end of the stylistic spectrum from Taleb’s Black Swan. Fung’s point is obviously the opposite of Taleb‘s: he is showing the reader how well statistical modelling can explain for apparently paradoxical behaviour. Fung is also adopting a very neutral tone, again a major change from Taleb, maybe being even too positive (no the only mention is made of the current housing crisis in the pages Numbers rule your world dedicates to credit scoring comes in the conclusion, pp. 176-7). Now, in terms of novelty, I cannot judge of the amount of innovation when compared with (numerous) other popular science books on the topic. For instance, I think Jeff Rosenthal’s Struck by Lightning brings a rather deeper perspective, but maybe thus restricts the readership further…

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Shorter, clearer, with no swan in the pond

Posted in Books, Statistics with tags , , , , on March 28, 2009 by xi'an

In the current issue of Significance, there is a four page discussion by Bill Janeway on the current financial crisis and the role of statistical models. If you remove the pictures and the quotes from Alice, it is more like three pages and they tell you much more than the three-hundred-somes of The Black Swan. For instance, the paper relates to references that appeared much earlier than the book to point out the distinction between uncertainty and randomness, a point on which The Black Swan is always vague, it also spells out that there are not always true models and that time-series are not always stationary, two points that The Black Swan misses, and that ergodicity does not apply and that markets are not rational. As in The Black Swan, there are mentions there of black swans as events that “happen once in five hundred years”, too, as well as of the inadequacy of models like Value at Risk (which provides a quantile estimate on the risk but no loss evaluation) and of Gaussian assumptions, but the paper also blames the crisis on the abandonment of the essential balance-sheet by banks. In its conclusion about the rise of behavioural finance, Janeway relates to Taleb by quoting from his hero, John Maynard Keynes, but for reasons different from Fooled by Randomness. Ending on “bad models are bad” by calling for models that explore inefficiencies in the markets is not going to solve the crisis, but, again, the paper gives a much clearer and more informative message than The Black Swan did.

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