Dogbert does Financial Planning:: applying myth or math?

Dogbert (flaw of large numbers)

Regulators want big, complex banks to hold larger buffers of capital to protect the financial system.

Big banks argue this is unnecessary because risk is diversified across their larger balance sheets.

Who is right? Natural sciences – especially epidemiology, ecology and genetics – provide clues…

 Complex systems: The FLAW of large numbers.

A “law of large numbers” is one of several theorems expressing the idea that as the number of trials of a random process increases, the percentage difference between the expected and actual values goes to zero.

If you REALLY want to get a deeper understanding of probability – and why it is wrong to assume too much from independent events (e.g. the roll of a dice) and apply that knowledge to the real world of inter-connected, non-linear systems – PLEASE check out the “Physics Envy…” presentation by Andrew Lo (link below).

Enhanced by Zemanta

2 Responses to Dogbert does Financial Planning:: applying myth or math?

  1. Matthew Abdelal says:

    Financial planning really takes some time and also lots of effort to perfect it. Sometimes it takes a lot of experience to do a perfect financial planning. .`'”.

    Till next time“>

    • Thank you for stopping by and for your comment.

      I could not disagree…but that is not THE point!

      It takes as long, if not longer, to “do” financial planning badly. To misrepresent financial information, create the processes and marketing to make it look like something it is not:

      misinterpret; misrepresent; mislead; mis-sell; misappropriate; mismanage

      Ultimately it is the customer who loses value that is retained by the creators. It is this culture of “ambiguity” (that is being kind!) and the unnecessary complexity it requires to achieve the “hidden” goal(s).

      If this is not the case why is TRANSPARENCY such a threat tothe Financial sector?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s