Risk versus Reward

Fintan O'Toole, a man for whom I have a lot of time, has an interesting article in today's Irish Times. His opening statement reads "Economic and scientific elites are prey to delusions that the unlikely will not happen. The rest of us pick up the pieces when it does."Fintan then proceeds to dazzle us with some armchair mathematics about million to one chances coming true. The main thrust of his argument is that because rare events don't occur often enough for us to classify them we can't make estimations on the likelihood of them occurring in the future.

He mentions the odds of six specific horses winning at Cheltenham as being 1.5 million to one. Fair enough. But the odds of any six specific horses winning would also be quite high. Not following horse racing I can't comment on the specifics, but lets say there were 10 horses in each race and each horse is exactly identical then each set of six winners is equally likely. In my scenario there are exactly 1 million outcomes so no matter which set of six winners occurred that's a one in a million chance. But one of those outcomes has to occur so why do we draw any special inference on that particular outcome? Because we're human and like to see patterns in chaos.

The other thing to note is that Fintan falls into another common trap by selectively picking his data points. Lets say Cheltenham ran for 5 days, 8 races per day, 10 horses per race, 3 Irish horses per race, all horses equally likely to win. Then the odds of there being a day where there were six Irish winners is given by our good old friend the binomial distribution and works out around 2% per day or about 9% over the course of the festival. All of a sudden that's pretty far away from the million to one odds that were being quoted earlier on.

EDIT: Just looked at my spreadsheet again - the 2% and 9% figures are for 1/3 horses being Irish. If there are 3/10 Irish horses then the figures are 1% and 5.5% respectively but they are still orders of magnitude greater than a million to one.

Later in the article he state the design of the Fukushima reactors "did not take account of the possibility of an earthquake beyond what had ever been experienced before being combined with a tsunami." If that is so, and I have seen nothing elsewhere that backs this statement up, it is a damning indictment of Japanese engineering practices 40 years ago. But I seriously doubt this is actually true when one considers the amount of effort that Japan invests into earthquake and tsunami defense.

The biggest failing of Fintan's article is that he ends up saying we should be subservient to Sods Law and that to challenge the status quo is in some way hubris. This I emphatically object to. The path of progress has always been risky. The Wright Brothers were not the first people to try to fly and many died before them trying. Many have died since in aviation accidents but we don't think twice about jumping on a Ryanair flight to see a football match in a foreign country.

Similarly nuclear power is not without its risks. The specter of a reactor meltdown or a dirty bomb immediately sends shivers up the spine. However, when compared to other sources of energy it has a pretty good track record. Despite the good news story of the Chilean Miners last year, coal mining and pollution from coal burning power plants still kill thousands every year. The Gulf Oil spill caused massive ecological damage and lets not even touch the whole Iraq issue in terms of lives lost.

We need to have a sensible, rational discussion about the issues surrounding nuclear power but articles like this should be called out for what they are - FUD.

Ireland v Darwin

First up it was the Minister for Education giving credit to Albert Einstein for coming up with the Theory of Evolution. Now it is the (Junior) Minister for Science launching a book that calls evolution a hoax. What is it with this country and poor old Charles Darwin?

Science is based on discussion and debate and so I would whole heartedly welcome a rational, fact based discussion on the merits of evolution. However, the huge preponderance of evidence points to the fact that evolution through crossover and mutation is the method by which order has been created from disorder in the natural world. The Minister for Science should not be seen lending his support to a polemic against a theory that has withstood the challenges of the scientific method. Having attended events where John May, the author, spoke (ranted would be a more accurate description) against the evils of teaching evolution I am certain that his book will add nothing to the debate on the origins of life.

Fortunately, following substantial pressure yesterday, the Minister has withdrawn from the event.

Day of Doom

Today, 30th March, is (un)officially the day of doom for several reasons.

• The NAMA transfers are announced
• Quinn Insurance is put into administration
• Some eejits in Switzerland finally make black holes

NAMA

I've written various bits about NAMA in the past and have always believed that it is a rotten deal that does nothing in the long term for the tax payer. Sure, it keeps certain financial institutions running and keeps the wolves from the door of certain developers for a while but how is that really in the state's best interest. Yet again Elaine Byrne says it far better than I can in today's Irish Times where she says we have been sleepwalking into NAMA. A letter in today's paper also sums up a lot about what is wrong with the Irish mentality where thousands march about hurling and hunting and only a few hundred (one of whom was me) marched against NAMA last September.

So today we finally get to see some of the toxic loans transferred into NAMA from the banks. According to reports, after this exercise INBS, EBS and AIB will end up effectively in state ownership and the state will hold a substantial minority shareholding in BOI and we will be left needing to recapitalize them giving an overall cost of about €22,000,000,000. As Elaine Byrne puts it, that is about €6,000 per man woman and child in the country.

I still believe the fundamental flaw was the blanket guarantee of all the bank liabilities as opposed to just depositors. Bond and share holders were taking a punt, were drawing down the big returns and so when it all went wrong should not have recourse to get the state to repay them. A short nationalization of BOI and AIB to keep consumer banking functioning while the rest went to the wall would have been cheaper and quicker. Instead we're now up to our gills in debt for absolutely no gain.

Quinn

This story is only just breaking, but putting the Quinn group's insurance companies to be put into administration is a major step. With the regulator saying he had very serious concerns about the companies abilities to meet liabilities the sweetheart deals between Anglo and Quinn have come around to bite everyone concerned. One wonders if the large dividends recently paid by the Quinn group will be recalled or if there is in fact any mechanism to do this.

CERN

So not actually a bad story - the LHC finally got switched on today and collisions were detected. Unless black holes behave differently than expected, by my being able to type this the universe hasn't been destroyed. Now lets go see if we can find this Higgs Boson and use the knowledge to cure cancer or feed the world or at least come up with a new version of Teflon. Science FTW!