Truck and Barter

One Percent Doctrine in Real Life

John Allen Paulos column on the One Percent Doctrine;

“…Suskind describes the Cheney doctrine as follows: "Even if there's just a 1 percent chance of the unimaginable coming due, act as if it is a certainty. It's not about 'our analysis,' as Cheney said. It's about 'our response.' … Justified or not, fact-based or not, 'our response' is what matters. As to 'evidence,' the bar was set so low that the word itself almost didn't apply."…

Imagine what would happen in various everyday situations were the Cheney doctrine to be applied. A young man is in a bar and another man gives him a hard stare. If the young Cheneyite feels threatened and believes the probability to be at least 1 percent that the other man will shoot him, then he has a right to preemptively shoot him in "self-defense."

Or an older woman visits her Cheneyite doctor who, finding that the woman has suffered from a sore throat and fatigue for months, orders that she be put on chemotherapy since the likelihood of cancer is in his opinion at least 1 percent. Further tests, he might argue, would take too long.

A Cheneyite gambler would be a casino's dream. The chance of rolling a 12 with a pair of dice, for example, is 1/36, almost 3 percent, and hence would justify the gambler betting his house on rolling a 12.

And what about a Cheneyite scientist, hard as that may be to conceive? If this scientist decided that the "evidence" for some crackpot scientific theory suggested to him that its probability were at least 1 percent, the scientist would feel comfortable touting it as a reasonable alternative to established theory."

"Needless to say, standards for action or decision are generally far more stringent. For a conventional scientist running a statistical test of a hypothesis the threshold is usually 95 percent, not 1 percent. More precisely, if the scientist runs the test, and obtains, based on the tentative assumption of the hypothesis, an outcome having a probability of less than 5 percent, then he or she generally rejects the hypothesis.

And certainly in criminal trials the statistical burden is much greater; it's beyond a reasonable doubt (that is, an indeterminate, but very high probability), not 1 percent. In civil cases the probability standard is lower, but still nowhere near 1 percent….

Nor do they need consistency. A companion to the Cheney 1 percent action doctrine (if the probability is at least 1 percent, act) is the administration's non-action doctrine (if the probability is less than 99 percent, then don't act). This latter doctrine is generally invoked in discussions of global warming, where it seems absolute certainty is required to justify any significant action. Ideology determines which of these two inconsistent doctrines to invoke...”

Related;
Blogs discussing the book; Brad De Long, Kevin Drum, Mathew Yglesias, Tom Tomorrow, Radio Free Newport, Sunstein, Jon Swift
Compare with Robert Rubin’s style of thinking

Multimedia
Suskind with Charlie Rose, Colbert, Democracy Now, CNN
Podcast of the pressentation at the University of Virginia, Miller Center of Public Affairs

Why Mentors are Important

Even criminals need mentors!

"Our analysis," write Morselli, Tremblay and McCarthy, "focuses on the effects of mentors on two aspects of criminal achievement: illegal earnings and incarceration experiences ... Proteges with lower self-control attract the attention of some criminal mentors, who provide the structure and restraint that lead to a more prudent approach to crime. This approach involves fewer and more profitable offences that lower the risks of apprehension and, perhaps, promote long-term horizons in crime."

The researchers used a painstaking protocol: "We collected information on monthly illegal earnings and on the number of days that respondents were incarcerated. After calculating the total for criminal earnings and incapacitation experiences for the period, we applied logarithmic transformations to create our dependant variables."

Their calculation resulted in a big payoff. As they put it: "Our findings suggest that strong foundations in crime offer an advantageous position for continuous achievement and the presence of a criminal mentor is pivotal for achievement over one's criminal career."

- Dastardly development; Mentors are crucial - for a career in crime (Improbable research column)

Related; Incentives for Delinquency

Worth Reading… It’s All Numbers

Links to a couple of articles and blog posts that discusses mathematics and statistics in the news;

Putting a Number on Happiness- The Numbers Guy.
More on the Happy Planet Index.

"The 200,000 people of Vanuatu -- a South Pacific nation composed of 83 islands, with an agricultural economy and corporate headquarters of file-sharing service Kazaa -- are the happiest on earth, according to a wave of recent articles….

The problem is, no one has asked Vanuatuans how happy they are. The ranking was based on extrapolating happiness levels from other countries."

I'm told that in Bhutan for the census they include a question on happiness. From a small sample of people I've met Bhutanese seem more happy than the one Vanuatuan I've met.

Cheney's One Percent Doctrine- John Allen Paulos

"Suskind describes the Cheney doctrine as follows: "Even if there's just a 1 percent chance of the unimaginable coming due, act as if it is a certainty. It's not about 'our analysis,' as Cheney said. It's about 'our response.' … Justified or not, fact-based or not, 'our response' is what matters. As to 'evidence,' the bar was set so low that the word itself almost didn't apply."

How a statistical formula won the war (via The Amateur Economist)

Lying with Statistics: Today's Example

Iraq Fact of the Day

“In theory, the Iraqi government buys fuel from neighboring countries at market rates and then resells it to Iraqis at cheaper subsidized prices. Subsidized diesel, for instance, was sold by the government for less than three cents a gallon for most of 2005, meaning that a 9,000-gallon tanker truck carried fuel officially worth around $250. But the same fuel was worth perhaps a dollar a gallon on the black market. With typical rates of $500 for protection money or police bribes and $800 to pay the truck driver, a smuggler could make at least $7,450 by bringing in fuel from Jordan, Syria or Turkey, according to Mr. Alak's report to the Oil Ministry.

After filling their trucks in neighboring countries, the drivers sell their load at a higher rate on the Iraqi black market. The beauty of the system from the smuggler's standpoint is that if arriving at an Iraqi fuel depot with an empty truck cannot be smoothed over with a bribe, the truck can be filled again elsewhere in Iraq at the cheap subsidized price….

Iraqi and American officials said they could not offer a total figure for what smuggling is costing the country every year, beyond asserting that it is in the billions.

But Oil Ministry data suggest that the total was $2.5 billion to $4 billion in 2005, said Yahia Said, a research fellow at the London School of Economics and director of the Iraq Revenue Watch at the Open Society Institute, a policy foundation.

Even at the low end, that would mean smuggling costs account for almost 10 percent of Iraq's gross domestic product, $29.3 billion in 2005.”

- Attacks on Iraq Oil Industry Aid Vast Smuggling Scheme (via Brad Setser)

See also Venezuela’s Non-Paradox of Value; In fact, gas in Venezuela is cheaper than mineral water, a seeming violation of the Paradox of Value.

Have Everybody Bet?!

An interesting error on the front page of NYTimes.com:

It links to this story about FIFA requiring players to sign pledges that they will NOT wager on games. However, I would love to see a game in which everyone was required to wager on games -- especially if a player was required to wager a large sum on his own team.

(Note that by the time I posted this, 15 minutes had passed, and the error was already corrected.)

Why we Misestimate Probabilities

Professor Simon Gandevia, a neurologist from the Prince of Wales Medical Research Institute explains in this podcast why we often literally 'jump' to the wrong conclusion;

“Suppose there was a stabbing outside a nightclub. In court, the one eyewitness testifies that the assailant fled in a silver-coloured taxi. On the night of the offence, it is known that only 15% of taxis on the road were silver. Furthermore, when the crime scene is recreated, it is established that the witness is 80% accurate at picking silver from non-silver taxis. You are the judge. What is the probability that the taxi involved in the crime was silver? Initially, it might seem, given the eyewitness is 80% accurate, that the probability the taxi was silver, as claimed, is also 80%. But this ignores the error the witness makes when observing the much more common, non-silver taxis. In fact, to work out the correct probability, we need to invoke a theorem devised by the Reverend Thomas Bayes, published in 1763, two years after his death. This theorem allows probabilities to be calculated accurately on the basis of full knowledge of all initial possibilities. When this non-intuitive, but mathematically simple, theorem is applied, the true probability that the taxi at the crime was silver is found to be only 41%; less than a one in two chance. In the Australian tradition, you should therefore bet that the taxi at the crime was actually not silver. We jump to the wrong conclusion unless the Reverend Bayes’ approach is applied.

What is happening here? The fact is that we are all victims of cognitive illusions. They are potent and almost impossible to ‘unlearn’, just like visual illusions, such as the ones in which two parallel lines with different cross hatchings seem not to be parallel, or two identical parallel lines with differently pointing arrowheads suddenly seem different in length. Just as these sensor y illusions expose the unconscious brain processes involved in perception, so cognitive illusions reveal the brain processes involved in thinking.

Why do these illusions exist? In the evolutionary world of predator and prey, snap decisions are quite literally vital. It has been argued that because we need time to evaluate probabilities before making a decision, a default system has evolved that rapidly evaluates choices. The Nobel laureate, Francis Crick, is well known for his discoveries about the double helix of our genes, but he later worked in the field of neuroscience. He and his colleagues postulated that humans needed to develop what he termed ‘zombie thinking’ in order to deal efficiently with the massive sensory input we continuously receive about the external world. This mode of thinking is thus necessary to allow us to react rapidly to external events, so that these cognitive illusions are ‘built in’ to us, almost certainly for evolutionary reasons. None of us is immune to them, not even those trained as scientists or judges. Our capacity for rational thinking is limited. Propagandists and advertisers are all too well aware of this.”

Related Podcasts;

Sigmund Freud - doctor, philosopher, therapist and writer was born 150 years ago near Vienna in the Austro-Hungarian Empire. His ideas on the significance of dreams, childhood sexuality and female libido had a profound impact on 20th Century intellectual life. Yet Freud was a hugely controversial figure, admired, idolised and vilified. Even today, his name still raises passions. Sharon Carleton takes a look at the legacy of this remarkable physician

Terrorism: What's Morality Got To Do With It? Recent terrorist acts such as 9/11 and the Bali bombing have been justified using moral and religious language, as has the West's response through its 'war on terror'. Political moral philosopher Thomas Pogge examines these justifications and whether they represent a moral framework that either side genuinely holds to.

The latest 4 shows from the Radio National’s Philosopher’s Zone; What is Enlightenment?, The question of consciousness, Do Animals Think?, Philosophy 101.

These podcasts are available for only limited time, so download now.

The Great Andalusian Stamp Scandal

The Financial Times recently had an editorial warning everyone about pyramid schemes as is illustrated by the recent stamp scandal in Spain;

“Two stamp companies have been accused by public prosecutors of embezzling money in a fraud involving 343,000 investors. Those investors were guaranteed high returns on their investments in what were said to be rare stamps, although experts believe the stamps have a low market value.

The Spanish companies have denied wrongdoing, but if the prosecutors are right, the stamp scandal is a Ponzi scheme in which the promised returns are paid to early customers using the cash from new ones. Such schemes efficiently channel money away from the many to the few and the majority lose everything. Stamps have a history in this regard: in 1920 Charles Ponzi promised impossible returns based on arbitrage of international postal reply coupons, initially from Spain.

It is hard not to feel sorry for the frightened investors. They should have realised that high returns cannot be guaranteed, but many have swallowed that old story before. Albania was consumed by pyramid schemes in 1997, after two-thirds of the population sought returns of 30 per cent a month.”

Spanish police had earlier issued the following statement;

"Potential investors were offered high returns from the purchase and management of a stamp fund, which was apparently made up of overvalued - or even fake - stamps and whose returns did not apparently come [from the fund] but from money received from new clients,"

Related Links;

- An earlier post about Pyramid Scheme Warning

- Stamps to Become a Marketing Vehicle;The U.S. Postal Service is allowing companies to create their own branded stamps for first-class mail. Instead of flags, you can expect to see a company logo; instead of photos of famous Americans, you might see pictures of your local real estate agent

Should you ever buy rental car insurance?

Tim Harford asks that question in his recent column at Slate discussing the prevalence of overpriced insurance;

“Matthew Rabin and Richard Thaler pointed out in 2001, in a paper that surprised even their fellow economists, that anyone who pays even slightly more than the fair premium to escape from a risk on a $90 phone or a $900 insurance deductible must be making a mistake. The stakes are too tiny: In the context of a $1 million lifetime income, even $900 is a small enough risk to swallow. We should turn down these offers of insurance and save the money in a contingency fund to pay for the occasional loss. The odds would be well in our favor and the petty uncertainty shouldn't cause us a single sleepless night.”

Related Blog; Decision Science News

Public Awareness of Simple Maths

Well, I know statistics combinatorics is a hard subject for many people -- odds and probabilities and all that -- but a reporter at The New York Times should not need to contact a mathematician to perform simple division.

In ESPN.com's 2006 Men's College Basketball Tournament Challenge, Pleasant had one of the four entries among three million with U.C.L.A., Louisiana State, Florida and George Mason in the Final Four.

Could you rephrase that, please?

Mike Breen, a mathematician ["public awareness officer"] at the American Mathematical Society in Providence, R.I., said the chances of correctly picking the Final Four in ESPN.com's contest this year were about 1 in 750,000.

Is there a rule at the Times that a reporter must have simple calculations performed by an outside authority? In defense of Mr. Breen, I gather that his full comments were far more substantive than what was quoted.

Some Thoughts on Probability

Mark Miller is trying to make probability sensible:

What does it mean to say there is a 10% chance of rain tomorrow? Or that there is a 7% chance Iraq will be a peaceful democracy in two years? These numbers appear silly: these are things that either will happen or won't....

To me, the traditional definition simply does not make sense. Instead, I think of probability just as a way of being systematic about our ignorance of the world....

In the end, I think probability is not something that can be concretely defined. It is a useful concept simply because it allows us to make sense of and systematize a complex world.

Well, I wouldn't go that far. Probability is an operational concept: a guess, constrained by several simple rules, about what will happen in a very specific context.

Those rules are the axioms of probability: namely, there is no such thing as negative probability, either something or nothing (an "event") will happen with probability 1, and if two things can't occur together, the probability of one thing or another thing happening is the sum of both.

Of course, all this is done very formally -- with logic and hard thought and, if you're like me, luck. But note what the rules leave out: they don't tell you which events in reality can happen in any given situation, they don't tell you how events relate to one another in sequence, and they certainly don't tell you how to determine what the probability of any event is.

For your regular Joe, a probability is a way to describe the evidence supporting the conclusion that an event will occur. These numbers do not fall off of trees (though they often are plucked out of thin air with Blink-thought). To be truly useful, they must be created with effort; somebody must 1) decide what's important to measure, 2) pull out of the historical record (and personal bias) all that is relevant, 3) make predictions about the environment up until the event is supposed to occur, and 4) figure out how to put it all together.

Here's one way: somebody can say, hey, event X1 looks like it belongs a class {X} with a known historical distribution of occurence. That is, somebody makes a personal judgement that X1 looks like it comes from {X}. When he does that, he says that there is a ten percent chance of rain tomorrow (X1). Why? Because in reasonably similar cloud-cover/pressure/storm-front situations at similar time periods in the past ({X}), it has rained 150 out of 1500 days. In other words, given what we know today about conditions tomorrow AND looking at how all this worked out in some situation we think similar, we come to probability figure.

That's useful when it works, but often the evidence does not present itself in such simple ways, and cannot be coralled, into a suitable form for this type of model. And to me, that's all probability is, a model converting what we know and what we're uncertain about into what we think will happen.

For instance, it is not possible to say that 7 out of 100 times the U.S. has invaded countries similar to Iraq, they've become stable democracies within five years. So what can it possibly mean to assign a probability to Iraq becoming stable even with no historical evidence to construct a class of which it is a hypothetical member?

Well, it can mean anything -- some people call this "degree of belief", but I don't think model outputs are beliefs. Anyway, as long as you have a way of transforming the convoluted mass of prior belief, uncertainty, and measured evidence into something that meets the laws of probability, then you've got a probability. Whether that metric is useful for decisionmaking is another matter.

Meanwhile, Naveen Mandava is "still looking for a powerful and simple way that the idea of distributions can make sense to a Philosophy undergrad or my mommy. Do you know of any?"

Prediction Markets in Everything: Superbowl Edition

Wondering who's gonna win this year's Superbowl? Just ask eBay.

The company Mpire is plotting the price of team paraphenalia for the Seattle Seahawks and the Pittsburgh Steelers, in an attempt to see if the price might be a decent predictor of Superbowl victory. The intuition, I suspect, is that people will be buying the merchandise of the team they expect to win, in the hopes that it will increase in value once the win occurs. Aggregating the data into a single price is intended to look something like the confidence that the crowd has in a win by one team or the other.

From a story on the experiment:

The confounding success of the famous Super Bowl economic indicator, where the winning team's conference seems to correlate with the coming year's economy, is spilling over into other areas of voodoo economics. This time it's reversed as eBayers are predicting the outcome of America's time-honored obsession based upon the going price of each team's merchandise.

Right now, Seattle is around $150, while Pittsburgh hovers near $100. Since Pittsburgh is generally viewed as the favorite, I have to wonder if there aren't a lot of people spending rather small amounts of money on Seahawks trinkets just on the off chance that an upset happens. After all, depending on the consumer's belief in the increase of the value, the expected value of the Seahawk do-dad could be above that of the Steeler gee-gaw, no matter what team the consumer believes will win. (Hey, wait -- does that mean we should read this prediction in reverse? Since the crowd seems to favor Pittsburgh, we should expect Seattle-stuff to sell for more? Not sure. My guess at relevent parameters: 1) closeness of the line, since a wide spread might induce people to forget the long-shot bet and snap up the favored-team's stuff before everyone else does, and 2) the price of the item purchased, since a signed t-shirt might go for cheap now, but could increase several times over in value, whereas expensive items require a much greater level of certainty. Anyway...)

Dennis Rodman on Ebay

Dennis Rodman has pitched in to raise funds for tsunami relief by auctioning off a weekend in Las Vegas with the Worm himself. From the LA Times:

Surf City's Dennis Rodman is on the auction block.

"The Worm," a former NBA rebounding champ known for his body piercings and notorious parties as much as his skills on the court, put himself on eBay on Monday as part of a charity drive for tsunami relief.

"Celebrities are looking to do their own thing, I think this is a perfect fit for Dennis," Rodman's agent Darren Prince said.

The top bidder in the "High Roller Fantasy" auction would win an all-expense paid weekend trip to Las Vegas with Rodman. His publicist, Shannon Barr, said the trip would likely be a wild excursion where the winner could end up dining, gambling and visiting strip clubs with the Worm.

"I hope it's a man because Dennis is just debauchery," Barr said.
LA Times:

It's nice that he is in the spirit to help his fellow man, in more ways than one.