By Sam L. Savage John Button of Gartner, Eng-wee Yeo of Kaiser Permanente, and I have published a three-part blog series at the FAIR Institute: Part 1, Part 2, Part 3. We were inspired by Eng-wee’s use of SIP Libraries at Kaiser, to integrate their risk and investment models. In 1952 the late father of Modern Portfolio Theory, and co-founder of ProbabilityManagement.org, Harry Markowitz, showed us that risks and returns have inevitable tradeoffs and cannot be considered in isolation. The open SIPmath™ Standard provides a means to easily network together stochastic simulations of all sorts, in ..read more

Recognize, Reduce, Respond By Dr. Sam L. Savage Just as Readin’, ‘Ritin’, and ‘Rithmetic were the pillars of public education, as encouraged in the United States in the early 1800’s, the Chance Age will require its own foundational elements. I offer you Recognize, Reduce, and Respond. Recognize Those who do not recognize uncertainty run afoul of the Flaw of Averages or worse.  I used to think there was nothing worse than representing uncertainties as single numbers until I saw it done with colors. With the advent of the discipline of probability management, once you recognized a set o ..read more

By Dr. Sam L. Savage August 24, 1927 - June 22, 2023   It is with deep sadness that I announce the passing of Harry Markowitz, Nobel Laureate in Economics, father of Modern Portfolio Theory, and co-founding Board member of ProbabilityManagement.org, in San Diego on June 22. Harry’s obituary published by the New York Times can be found here. Harry truly started the war on averages in the early 1950’s at the University of Chicago. He read the academic literature of the time which specified that investment decisions should be based on the average value of the assets. But he knew that averag ..read more

By Dr. Sam L. Savage. Illustration by John Button. In the mid-1990s when Ben Ball and I began applying Markowitz Portfolio Theory to petroleum exploration (see Chapter 28 in The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty) we would often be asked what type of software a firm should buy for that purpose. I would respond by saying that’s like someone who wants to build a house asking what kind of hammer to buy instead of looking for an architect. I have seen this story play out many times. In the arithmetic of uncertainty, simulation software plays the role of pencils ..read more

By Sam L. Savage (Free webinar with Tom Keelin on the Multivariate Metalog Distributions, May 17, 2023, 8:00 AM PT) Over the years I have blogged numerous times about the Metalog quantile functions, described here in Wikipedia. A quantile function is a formula used in simulations to generate random variates of any shape from a uniform random number (Rand(), for example, in Excel). This blog provides background and context for understanding a more complex version, the Multivariate Metalog, which its inventor, Tom Keelin will be presenting in a webinar later this month.   Tom views the Met ..read more

By Sam L. Savage In this blog I will discuss some technical details of the BayesOmatic in the Top Gun model introduced in the last blog. Those familiar with me know that I would not have called the gauge in the model the ChanceOmeter if I hadn’t been able to purchase ChanceOmeter.com for $11, and while I was out shopping, I picked up BayesOmatic.com for the same low price. The ChanceOmeter is just a pie chart driven off of two cells on the Calculations page. The green segment is based on a cell created with the Chance of Whatever button in ChanceCalc, and the red segment is simply 1 minus the ..read more

TOP GUN: MAVERICK A WALK IN THE PARK OR MISSION IMPOSSIBLE? By John Button, Connor McLemore, and Sam Savage Presuming the producers maintain this pace, we can barely wait for the 2058 release, when a 96-year-old Tom Cruise at the controls of the only remaining aircraft on Earth, his own WWII P51 Mustang (which appeared in Maverick) flies through a hail of anti-matter death particles to save the planet from the descendants of Chat GPT. Free Excel Simulation and User’s Guide available at ProbabilityManagement.org and The Military Operations Research Society     Overview In the 2022 f ..read more

Matthew Raphaelson, our Chair of Financial Applications, was my student at Stanford in 1991. He went on to become CFO of a multi-billion-dollar organization at which he pioneered probabilistic thinking. He points out that SVB no doubt had stochastic models of both their investments and depositors. Individually each of these models might have indicated smooth sailing. When the right hand doesn’t know what the left hand is doing, but they both happen to be clapping, there is no sound. Had both models been driven by same stochastic library of interest rates, perhaps management might have noticed ..read more

““War provides information. You learn things on the battlefield that you cannot learn in any other way.” ” — Hein Goemans, Professor of Political Science, University of Rochester Information Value Theory was invented by Stanford’s Professor Ronald Howard in 1966 and has been widely applied and popularized by decision analyst and author Doug Hubbard, and others. It measures the value of reducing uncertainty in terms of the expected economic gain from better decisions based on new information. A classic example involves the decision of whether or not to buy an umbrella before a day with a 10% ch ..read more

by Sam L. Savage ““It is difficult to get a man to understand something, when his salary depends on his not understanding it” ” — Upton Sinclair According to my new best friend and advisor, ChatGPT, the above quote from the 1906 book, “The Jungle,” “reflects Sinclair's belief that the interests of capitalists often conflict with the well-being of workers and the general public, and that people will often choose to ignore or justify harmful practices if they stand to benefit financially from them.” Although the context of the quote was “the unsanitary and inhumane conditions in the meatpacking ..read more