Sometimes you read something that really gets you thinking . . .
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).
The above is from an essay called THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS by Nassim Nicholas Taleb [9.15.08]. It contains two very interesting ideas.
The idea of the 'black swan' (highly improbable and unpredictable events that have massive impact) and the 'fourth quarter' (complex decisions in 'extremistan' [the Black Swan's domain] where statistics are useless and statistical based claims should be seen as hopeless guesses (at best).
Taleb suggests there are two classes of probability domains: Mediocristan and Extremistan.
In Mediocristan, exceptions occur but don't carry large consequences. Add the heaviest person on the planet to a sample of 1000. The total weight would barely change. In Extremistan, exceptions can be everything (they will eventually, in time, represent everything). Add Bill Gates to your sample: the wealth will jump by a factor of >100,000. So, in Mediocristan, large deviations occur but they are not consequential—unlike Extremistan.
Anyway, I thought you might like the link too.
What do you think???
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).
The above is from an essay called THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS by Nassim Nicholas Taleb [9.15.08]. It contains two very interesting ideas.
The idea of the 'black swan' (highly improbable and unpredictable events that have massive impact) and the 'fourth quarter' (complex decisions in 'extremistan' [the Black Swan's domain] where statistics are useless and statistical based claims should be seen as hopeless guesses (at best).
Taleb suggests there are two classes of probability domains: Mediocristan and Extremistan.
In Mediocristan, exceptions occur but don't carry large consequences. Add the heaviest person on the planet to a sample of 1000. The total weight would barely change. In Extremistan, exceptions can be everything (they will eventually, in time, represent everything). Add Bill Gates to your sample: the wealth will jump by a factor of >100,000. So, in Mediocristan, large deviations occur but they are not consequential—unlike Extremistan.
Anyway, I thought you might like the link too.
What do you think???
