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Acts of God and ManRuminations on Risk and Insurance$
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Michael Powers

Print publication date: 2014

Print ISBN-13: 9780231153676

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231153676.001.0001

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Patterns, Real and Imagined

Patterns, Real and Imagined

Observation and Theory

Chapter:
(p.191) 12 Patterns, Real and Imagined
Source:
Acts of God and Man
Author(s):

Michael R. Powers

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231153676.003.0012

This chapter addresses the fundamental problems of separating signals from noise in modeling risk-related phenomena. It gives particular attention to the Titius-Bode law (TBL) of exponentially increasing distances between the successive planets of our solar system, because of its remarkable similarity to the Gompertz-Makeham law (GML) of human mortality. Both types of analyses involve observational studies, in which the researcher must rely on the data as they are collected, without the option of generating new observations according to some experimental design. However, the former are infinitely more complicated in that they open the door to arbitrarily large numbers of additional explanatory variables in attempting to assess causality, whereas the latter simply address the presence of a simple functional relationship. The chapter argues that observational studies are entirely useless for resolving matters of causal relationship. While these can provide guidance as coarse data-analytic techniques, they should eventually be replaced by more sophisticated alternatives.

Keywords:   risk modeling, empirical data, Titius-Bode law, Gompertz-Makeham law, statistical analysis, observational studies

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