Actuarial Musings

Before the interwebs slow to a crawl with all the folks out celebrating living in the land of the free and home of the brave…we can indulge in a bit of paranoia from this story at Threat Level:

Google will have to turn over every record of every video watched by YouTube users, including users’ names and IP addresses, to Viacom, which is suing Google for allowing clips of its copyright videos to appear on YouTube, a judge ruled Wednesday.

Viacom wants the data to prove that infringing material is more popular than user-created videos, which could be used to increase Google’s liability if it is found guilty of contributory infringement.

One wonders why users’ names and addresses are required for such a mining exercise.  Surely Viacom could conduct its exercise using anonymized data, just like most of us who work with consumer data do.

One of the challenges actuaries regularly face come from management or customers who seek an answer – not just any answer, mind you, but The One True and Infallible Answer, a particular number that one’s hat can be hung on.

That sort of demand makes it a good thing that recent developments in computing technology and modeling algorithms make it possible to generate a number, with quite a bit of impressive-looking analysis and number-crunching behind it.

There is a problem, however.  The One True Answer is rarely just a number.   It’s a range, couched in caveats on potential sources of uncertainty, and subject to the chance that assumptions made in modeling and number-crunching could be wrong.

That uncertainty doesn’t necessarily damn the model’s output, mind you.   However, it’s important to remember that the model provides just one piece of information.  The possible other outcomes need to be considered.  And, when conventional wisdom or common sense contradict model output, there’s a healthy opportunity to review what we know, what the shortcomings of limited knowledge might be.

Sometimes it’s OK to discount, or even discard, the output of the black box when there’s reason to believe it’s not quite right.  Just document the phenomenon, periodically review the deviations to ensure they’re honest and not a reflection of bias, and attempt to retrain the tool given what we’ve learned about its shortcomings.

Sadly, in management’s quest for The One True Answer, such deviation and retraining can be forgotten.  Managers like their firm, seemingly infallible numbers.

A taste of that phenomenon appeared yesterday in a Wall Street Journal article discussing criticism of property/casualty catastrophe modeling (subscriber link):

Perhaps the most prominent critic to surface is Karen Clark, an economist who founded one of the first cat-modeling firms two decades ago. Today, she warns about the programs’ misapplication.

After Katrina, she attended insurance-company meetings to discuss "what went wrong" and concluded that there were more problems with how insurers were using the models than with the models themselves.

Companies that rely too heavily on cat-model data "are subjecting their businesses and their customers to the volatility of computer models," says Ms. Clark, who now runs a Boston cat-model consulting business. "The models are being used as if they produce definitive answers rather than uncertain estimates." Ms. Clark says she advises clients to use them in conjunction with other factors, such as broad historical data.

To be sure, insurers themselves are facing higher rates from the reinsurance companies that backstop their claims. The reinsurers, and the financial ratings agencies that assess the health of carriers, are also using the controversial newer models.

It’s thinking about debates like this which makes my job fun. 

And, before anyone thinks otherwise…no, this doesn’t mean Florida politicians are correct.   Providing cat wind cover in Florida is risky and expensive even before model outputs are grossed up for possible short-term climate phenomena and regardless of anyone’s overreliance on the models.

As someone who occasionally travels by air for business, I’m used to the chore of unpacking my computer at security for x-raying, as well as the regular worry that someone will walk off with my laptop or that it will be squashed in a luggage pile-up.

So, I was very pleased to see this bit of news in the New York Times:

The Transportation Security Administration has given the go-ahead for passengers to use newly designed carry-on bags that will let them pass through security without having to take their laptops out for the X-ray inspection.[…]

Two of the biggest luggage manufacturers — Pathfinder Luggage and Targus — say they are rushing to produce the new “checkpoint friendly” laptop cases and expect them to be available by late September or early October. […]

Pathfinder is making two models but plans others. One is a briefcase in which the attached laptop holder is exposed when the case is unzipped. The other is a wheeled carry-on with a removable laptop case.

OK…so that doesn’t sound too terribly different than some carry-on designs I’ve seen previously.  However, presumably we’ll need to have the magic TSA-blessed logo on our bags if we don’t want to have to bare our computers.   So, I’ll probably be shopping for a new bag this fall.

One of the reasons I started / I maintain this site is that I think too much.  Every so often an oddball thought pops into my head, and it’s nice to express it, either in the hopes that it’s either a good thought worthy of being shared…or that it will serve as evidence for one day when I’m committed to the funny farm.

One of the mailing lists I subscribe to is for folks who have a fascination with borders, tripoints, and the like.  A recent discussion on the de facto border between Israel and Palestinian Authority territory on that list has turned nasty, for the usual reasons.

The subject of “what to do” about the Middle East is a nasty one, as there’s plenty of blame to spread around, a lot of history behind the current situation, not to mention the conflicting claims of entitlement to the region.

It’s that “conflicting claims of entitlement” that stimulated my nutty idea of the day.

I wonder, what would happen if, by international consensus, everyone were kicked out of the country, at least temporarily, and sovereignty were transferred to a theoretically neutral party with no prior claims to the region – the Dalai Lama, for instance.

The conflicting parties could be resettled elsewhere…or even be granted readmission to the region, provided they accepted governance by the new powers-that-be.

I know, it’ll never happen, and it would only aggravate the conflicting claims of title on property in the region.  But given the ugliness of Middle Eastern politics, sometimes you wonder if the situation is messy enough that if the parties involved can’t just learn to table past conflicts and quit antagonizing the other side (the only practical solution, unfair though it may be), the next best answer is to wipe the slate clean and start from scratch.

I hate it when others abuse their cell phones, by forgetting to silence the ringers in noise-sensitive environments, or by talking on them at inappropriate times.

So, I got a warm, fuzzy feeling when I encountered this story in the AJC:

Sloan, an Atlanta Municipal Court judge, held two men in contempt of court recently after their cellphones rang, just minutes apart, while court was in session at the downtown Atlanta courthouse. He put both men in the jury box and finished the cases on his docket before doling out identical sentences to the men: a $200 fine or 10 days in jail.

Ah, if only I could bill (and collect from) the folks who (for example) spoil movies by talking on their cell phones….

Seen in the Orlando Sentinel:

Gov. Charlie Crist and the Florida Cabinet had told the state’s risk managers to find potential buyers for as much as $11 billion in bonds that would be needed to pay claims if the state is racked by a Katrina-sized hurricane.  But with financial markets in tatters, state money managers say they’ve struck out.

"The terms that we are getting are just outrageously expensive," said Jack Nicholson, director of the state’s hurricane catastrophe fund.

Translation: The state now will hope for the best.

[If a massive storm were to strike Tampa or Miami] Florida would have to sell bonds to help insurers pay claims. But with about $8 billion in cash and the expectation the state could sell a maximum of $10 billion in bonds, officials fear a possible $11 billion shortfall.

Mother Nature has responded via the National Hurricane Center thusly:

A STRONG TROPICAL WAVE IS LOCATED OVER THE EXTREME EASTERN ATLANTIC
OCEAN NEAR THE WEST COAST OF AFRICA...AND IS ACCOMPANIED BY A BROAD
AREA OF SHOWERS AND THUNDERSTORMS AND PERHAPS A WEAK SURFACE LOW.
ENVIRONMENTAL CONDITIONS COULD ALLOW FOR SOME SLOW DEVELOPMENT OF
THIS SYSTEM DURING THE NEXT COUPLE OF DAYS AS IT MOVES WESTWARD AT
ABOUT 15 TO 20 MPH.

I know.  It’s not that impressive a tropical outlook…but it’s somewhat ironic that the first hiccup in the Atlantic in about a month would come just as Florida decides to cross its fingers again this year.

Last week, it was announced that a District Court of Appeals had found that the classification of a Uighur held at Guantánamo Bay as an “unlawful combatant” was inappropriate; the Government needed to either revisit his classification or release him.   The appellant’s attorney was reported as looking forward to passing along the news…but was unable to do so since his client was being held in isolation, incommunicado.

The New York Times is reporting that the unclassified portion of the opinion has been released.  This passage in the story caught my eye:

With some derision for the Bush administration’s arguments, a three-judge panel said the government contended that its allegations against a detainee should be accepted as true because they had been repeated in at least three secret documents.

The court compared that to the absurd declaration of a Lewis Carroll character: “I have said it thrice: What I tell you three times is true.”

“This comes perilously close to suggesting that whatever the government says must be treated as true,” said the panel of the United States Court of Appeals for the District of Columbia Circuit.

This, ladies and gentlemen, is exactly why our government has a system of checks and balances.  If one branch of the government gets a little too full of itself, another can step in and impose some amount of reason, thereby reducing the chance our government devolves into a totalitarian regime.

I don’t object in principle to the idea that those who really threaten public safety should be detained.  However, the process by which the threat they pose is neutralized must permit a fair process to review the assessment of that threat.

You’d think that given after all this time, the process we have today wouldn’t rely on Executive fiat or the use of a tame, kangaroo court.

Apparently the federal courts would seem inclined to agree.

I had to double-check, to make sure that it wasn’t The Onion.  It’s not; seen at ABC News:

Chambers says in his lawsuit that God has made terroristic threats against the senator and his constituents, inspired fear and caused "widespread death, destruction and terrorization of millions upon millions of the Earth’s inhabitants."

The Omaha senator[…] also says God has caused "fearsome floods … horrendous hurricanes, terrifying tornadoes."  He’s seeking a permanent injunction against the Almighty.

The article at ABC provides a bit of the background behind why Chambers has filed this suit.

Sadly, the judge before whom Chambers v. God is being brought appears to lack a sense of humor, and is threatening sanctions against Senator Chambers.  I can think of a few different approaches to dismiss the case – Sovereign Immunity, separation of church and state, lack of non-hearsay evidence….

Seen at CNN:

The Bush administration has launched a "significant escalation" of covert operations in Iran, sending U.S. commandos to spy on the country’s nuclear facilities and undermine the Islamic republic’s government, journalist Seymour Hersh said Sunday.[…]

President Bush and Vice President Dick Cheney have rejected findings from U.S. intelligence agencies that Iran has halted a clandestine effort to build a nuclear bomb and "do not want to leave Iran in place with a nuclear program," Hersh said.

"They believe that their mission is to make sure that before they get out of office next year, either Iran is attacked or it stops its weapons program," Hersh said.

Surely I can’t be the only person speculating about joint American-Israeli operations against Iran being started up on Wednesday, 5 November, too late for it to impact the November elections, but before the Bush administration is removed from power.

If the Dems were truly dovish, they would start wrestling through a prohibition on the expenditure of any funds in preemptive, offensive action against Iran between 1 November and 20 January as part of each and every appropriations bill passed between now and the change in administrations.

If a legitimate need to go to war with Iran emerged, such a prohibition could be rescinded.  And, by setting those particular time limits, the administration would be obliged to weigh the political ramifications of any aggression (as opposed to the potential for a Lame Duck War).

I normally would not be comfortable suggesting that such restrictions be attempted against the Commander In Chief.  However…where are the WMD’s the invasion of Iraq was supposed to protect us from?

One of the things I enjoyed about working with credit scoring in a prior job was the utter beauty of the interrelationships of the different variables coming together to make a prediction.  When you consider that beyond delinquency information, scoring relies on utilization, stability and breadth of credit, questions like “what happens to my score if I apply for a new credit card” become beautifully complex.

Similarly, one of the lessons I learned in that job was “watch out for the impact of economic changes on your credit model”.  While that’s a subject that has been reasonably well-hashed-out for banking and lending purposes, both domestically and internationally, American usage of credit data for insurance purposes is still comparatively new.  The current crunch is arguably the first test of the interrelationship between scoring and predictiveness.

So, it is with some interest that I notice a wire service story came out this weekend on how credit issues are starting to be reflected in (banking) credit scores:

At the same time, revolving credit usage — which includes credit cards — accelerated sharply to a year-over-year growth rate of about 8 percent in recent months. That’s the fastest rate in seven years and well ahead of the 2 to 3 percent rate of growth from 2004 through 2006 when home equity lines of credit were a bigger source of cash for consumers, according to Merrill.

But as credit cards are used more frequently, that often results in bigger balances left on the cards. What’s worrisome is that consumers who are faced with a number of ugly economic scenarios hitting at once — falling home prices, surging commodities costs and a weak job outlook — won’t be able to pay their bills.[…]

[C]ard companies including Washington Mutual, HSBC and Wells Fargo are lowering their credit limits, according to data from the consulting firm Institutional Risk Analytics.  Consumer advocates aren’t saying that is bad news — in fact, they believe it helps prevent cardholders from overextending themselves and is preferred to having a sudden surge in card interest rates. […]

Let’s say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000. But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40 percent to 80 percent. That is then factored into the calculation of one’s so-called FICO credit score, which measures creditworthiness, according to Craig Watts, a spokesman for FICO-creator Fair Isaac Corp.