Risk:: some things just CANNOT be modelled


Believe it or not this is only an extract from a longer article by the Founder of Ontonix. I am, very much a layman when it comes to computer models but that is most certainly not the case with Jacek (Marczyk). However, even I know enough to question, what I have come to refer to as, the “prediction addiction”  that afflicts the insurance and wider financial sector.

There is a fundamental principle – the Principle of Incompatibility – which states that as complexity increases, precision and relevance become mutually exclusive. In other words, as things get complex (and they seem to be) your statements about it become less and less precise. This means that as something becomes highly complex you can forget building models. You need to change strategy. A new approach is needed. You must change direction. Large consulting firms claim otherwise. Read more of this post

So, what does the future hold?


…NO-ONE KNOWS! Deal with it. Move on.

It doesn’t matter whether you have a calculator or a PhD, a supercomputer and a job with a 200 year old financial institution that is a fact. So, can we PLEASE get over our prediction addiction and deal with what we are able to influence in the real world!?

Coincidentally, this morning, I read an excellent book review (Models Behaving Badly by Emanuel Derman) and I wanted to share his quote about mathematical models: “we are trying to force the ugly stepsister’s foot into Cinderella’s pretty glass slipper. It doesn’t fit without cutting off some of the essential parts.” 

But here is yet another expert making the same point…

Simulations of highly dynamic natural systems have shown that models of growing complexity are moving slowly toward reasonable replications of reality: global climate modelling is a fine example of this slow, but indisputable, trend. In contrast, forecasts of interactions of social, economic, technical, and environmental developments are not going to improve by making models more complex. This is because so many critical variables determining eventual outcomes cannot be either anticipated or, when they get considered, their probabilities cannot be confidently placed within bounds narrow enough to generate a restricted fan of possible outcomes that might be used in confident decision making. Once the inherent uncertainties make the outcome fan too wide, there is little point in building more complex models: we might have obtained pretty much the same results with a small electronic calculator and the proverbial back of an envelope.

What to Do Instead

Read more of this post

Insurance industry plumming new depths:: why the poor will pay more


I am almost too angry, sickened and embarrassed to add any comment to this article, but here it is…absolutely disgusting!

‘One theory is that if you are careful with your credit you are more likely to be careful with other areas of your life, such as maintaining your vehicle,’ he says.

In another move, insurers are using ever more sophisticated software to decide the risk of someone living at a specific address.

Insurers are using your whole postcode — which covers just a few neighbours —rather than the first three or four digits, which dictate your region.

This means if your neighbours have a number of particularly bad accidents, your premiums could soar. Figures from insurer esure show innocent drivers living in the B31 postcode area of Birmingham saw their insurance premiums jump after a 300 per cent increase in claims in their area.

On top of hiking premiums, insurers are taking an increasingly hard line on claims.

via Why the poor will pay more than the rich for car cover | This is Money.

Seth Godin:: Two questions behind every disagreement


There is no getting away from the fact that communication and consistency are critical but so is understanding. If all parties have the same goals [a common purpose] but the language is different, the means of communication unreliable or poorly structured*, the scope for progress is, seriously, hampered because the information-flow between individuals – interdependent components or processes – is impaired and vital signals can become confused or lost.
If the goals diverge, for whatever reason, the purpose may remain similar but the interdependence that is fundamental to a resilient enterprise, strategy or system is lost. This is how organisational silos can occur:
inter-connectedness is a less resilient state than interdependence.

*hierarchical structures  were NOT created to manage information in the Digital Age but to manage people and process in a past era.

Are we on the same team? and

What’s the right path forward?

Most of time, all we talk about is the path, without having the far more important but much more difficult conversation about agendas, goals and tone.

Is this a matter of respect? Power? Do you come out ahead if I fail? Has someone undercut you? Do we both want the same thing to happen here?

Read more

Seeing beyond flags of convenience for a virtuous ‘circle of life’


Don’t think ill of me because this (lengthy) extract is taken from an article I wrote earlier in the year [Don’t (just) believe your eyes:: heuristics + complexity = guesswork]. When I re-read it, I reckoned stood up pretty well on its own.

Also, I felt it tied in well with more frequent (and louder) calls for greater transparency and an increased awareness of the “lessons from nature” – that resilience comes from within – that are, so often, overlooked.

I hope you agree.

Too often, in the absence of information that we can understand and trust, we make assumptions based upon what we are TOLD and the outer appearance i.e. what WE see.

Our senses form part of our very own in-built risk management system! But we don’t KNOW as much as we would like to think. That is why we defer to others… 

What do we do when it comes to really big decisions…when we don’t have the opportunity/tools/expertise to establish the FACTS for ourselves? Read more of this post