Reinhart and Rogoff story shows how important it is to check your indicators

This month two academic researchers showed that there were errors in the calculations behind the claim by economists Carmen Reinhart and Kenneth Rogoff that the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one [...]

The Department of Justice will have a tough time proving that Standard and Poors “inflated” its bond ratings.

The US Department of Justice has launched a civil law suit against the rating agency Standard & Poors, alleging “S&P issued inflated ratings that misrepresented the securities’ true credit risks” and that “S&P falsely represented that its ratings were objective, independent, and uninfluenced by S&P’s relationships with investment banks when, in actuality, S&P’s desire for [...]

The bond trader’s fallacy

A few weeks ago one of us was sitting beside a retired bond trader at a luncheon. Both interlocutors being interested in probability and its applications in business, there ensued a disagreement about whether in a sequence of coin flips the flips were independent. The bond trader argued that anyone who believed they were not [...]

Lance Armstrong doping case and bond defaults show challenges of probabilistic reasoning

In an earlier blog post (here) we wrote that, given the evidence available to us at the time, Lance Armstrong was probably not guilty of doping. The main line of our argument was that hundreds of doping tests from certified laboratories using accepted procedures had not found dope. We restricted the evidence to this, in the [...]

Rare events

A lecture announcement from the Department of Mathematics and Statistics at Dalhousie University said that “this year our Distinguished Speaker is Professor Srinivasa Varadhan,” who will give a talk on RARE EVENTS on October 11. The abstract of the talk says that “we often have to make a quantitative assessment how rare event (sic) really [...]

Accident stats don’t tell you much about safety

On April 9, 1992 the Canadian Institute of Mining, Metallurgy and Petroleum awarded the Westray Mine the coveted John. T. Ryan Award. The Institute grants the award every year to the mine that had the lowest accident frequency per 200,000 hours worked during the previous calendar year in Canada. On May 9, 1992, the mine [...]

Why you cannot measure risk

In 2008, Collateralized Debt Obligations (CDO) that had been given very high ratings by the credit rating agencies collapsed. The rating agencies got blamed for faulty ratings. Once a mining association gave a coal mine the “Safest Mine Award.” One month later the mine blew up and killed 32 miners. The award is based on [...]

Can China’s credit rating agency do a better job than its rivals?

An AAA rating is not “wrong” because the security later defaults.

misLeading Indicators: How to reliably measure your business

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