‘If someone says, “Given my study of river height variation, there is a 1% chance this levee will be breached sometime in the next year,” it sounds like a statement of physical reality, that might be right or wrong, but either way has objective meaning.
*That is not in fact true.*
The statement contains implicit assumptions about the value of human life versus property damage, since both are at stake… Someone with different values would set the betting odds at a different number’
“Taking less risk than is optimal is not safer; it just locks in a worse outcome. In competitive fields, doing less than the best often means failing completely. Taking more risk than is optimal also results in a worse outcome, and often leads to complete disaster.”
—Aaron Brown, “Red-Blooded Risk”
“[John Kelly] discovered that if you take an optimal amount of risk—not more and not less—you can be certain of exponentially growing success, which will always leave you better off than any other strategy. Instead of gains and losses bobbing you up and down, you can take off like a rocket to astronomical success.” —Aaron Brown, “Red-blooded Risk”
Risk ignition via Kelly bets.
@22 But is that true? If I run an ensemble simulation for this scenario, and e.g out of my 10,000 variants, 96 result in levee breach, then how could I put the odds at a different number?
@wim_v12e barring the existence of such an experimental setup, we’re left with probabilities aka betting odds aka insurance premiums, and Brown is saying the establishment of such a number has mixed into it all these other considerations.
@clew @wim_v12e Brown retired recently as risk manager for a major hedge fund. He's written a few interesting books on risk+allied topics (he's also a high-stats poker player). In this excerpt, he's trying to say that when you encounter a probabilistic statement, it's not as objective as it sounds—it has many other probabilities baked into it.
So, the number comes from hydrology but also other factors. I don't think that example was intended though to be taken extremely literally though.
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