Thursday, 21 September 2017

Logical failures when discussing the weather

Watching the terrible Hurricane season in the Caribbean has not been a lot of fun. Lovely island cities and cultures face ruin and the support is both hard to send and it needs to be plentiful. I wrote a piece last week showing how heartless some are and I read this week too that apparently these countries are too rich for aid.

What exactly is the logic in that?

I earn money and become rich, I buy a house, I invest all my money in it, the house is destroyed and I have no insurance. My money was the house, ergo I am no longer rich.

The logic of saying you are too rich to help clearly can't apply when a country is destroyed. Has no one recalled the Marshall Plan or the Berlin airlift? Bureaucracies are stupid, another reason to have less involvement with grandiose international institutions.

Then, following on from yesterday's post, I have spoken to quite a few people keen to opine that the Hurricane season this year is worse due to climate change. That as maybe, however their evidence is that this is a once-in-a-hundred-year event. Which, by definition means that it happened around a hundred years ago, before climate change. Where is the logic in their arguments? It would only make sense if this was the worst weather event ever or if it was now more frequent that in the past - that would be logic (and, neither of those statements it true as yet).

Who else has good current examples?


Nigel Sedgwick said...

Firstly, is there no insurance by choice of all the world's insurance companies, or is there none because individual property owners view the premiums as not cost effective? And surely there are variations with individual properties on whether they are insured or not, and how strongly built they are (overall or in part).

Next, is not such storm risk rather like river flood-plain risk in the UK. Tolerable given the protections. Maybe modest cost buildings are just rebuilt (and designed with that in mind).

Finally, I am advised that it is fairly common practice to build houses in the UK with an expected life of 70 years. With once in 50 to 100 years average risks, many such properties would survive long enough unravaged by flood - so justifying their build costs, and mitigating their forced rebuild costs in the even of unscheduled need. Might not this also apply in storm risk areas?

Best regards

Man from the Pru said...

What's wrong with self-insurance? Build whatever you want, wherever you want and suck it up if it goes wrong. No different from any other "investment" since homes are seen as investments these days.

Steven_L said...

Is is people within the aid and development business saying these countries are too rich to help? Are any of the big aid and development organisations saying this in public?

Or are we simply referring how the $14bn or whatever it is DFID budget is spent?

Anonymous said...

One hurricane is weather. Climate is the number of hurricanes over a 15 year period.

To see trends (if any) you need to look at the running 15-year average for hurricane numbers. Likewise for air or ocean temperatures, rainfall, polar ice, etc.

It shouldn't be that hard to explain this to the confused.

Don Cox

Nick Drew said...

Pru-man @ 11:01: a capitalist writes ...

Self-insurance is fine if (a) you have enough of a portfolio to justify it; (b) you have sufficient data to estimate whether commercial insurance is decent value; (c) you've factored in cash-flow; (d) you have a reasonably low cost of capital; and (e) you understand about diversification, portfolio effects, asymmetric and fat-tail outcomes, dependent & independent events - and reckon you can take the hit

E.g., a washing machine is a strong candidate, an ordinary camera even more so. We have lots of such items and are going to replace them periodically over time; we have enough experience to know they last a good few years; the warranty schemes are outrageously expensive; the amounts involved are (for most readers here) easily managed in cash-flow terms (and if you have a run of bad luck you can probably raise the £££ without undue expense); there is no fat-tail outcome not already covered by household insurance; we probably have no reason to think they will croak on anything other than a random / age-related basis.

Not many people can go through that logic with a house (or even a car)

dearieme said...

The once-in-a-hundred years factoid is misunderstood by almost everyone.

'The probability of a particular rainfall amount for a specified duration being equalled or exceeded in any 1 year period can be expressed as a percentage (the annual exceedence probability or AEP) or as “on the average once in every x years” (an average recurrence interval, or ARI, of x years). As an example, for Melbourne, a rainfall amount of 48.2 mm in 1 hour can be expected to be equalled or exceeded on average once every 100 years. In this case, the ARI is 100 years and the AEP is 1%. It is important to note that an ARI of, say, 100 years does not mean that the event will only occur once every 100 years. In fact, for each and every year, there is a 1% chance (a 1 in 100 chance) that the event (in this example, 48.2 mm in 1 hour) will be equalled or exceeded (once or more than once)."' Got that? What follows is interesting.

Then "the chance this (1% AEP) value has of occurring or being exceeded over a longer period, say the 50 years from 2001 to 2050 ... is calculated to be about 40%. That is, a 1% AEP (100 year ARI) event has a high chance [40%] of being equalled or exceeded over a 50 year period. Similarly, if a storm water drain is designed to cope with a 10% AEP (10-year ARI) rainfall event there is a 10% chance of it’s being overtopped next year, a 39% chance in the next 5 years, and 63% chance in the next 10 years.

I can't claim that I understand everything about that argument. For instance it seems that the ARI is simply defined to be the reciprocal of the AEP, in which case it's not obvious to me that “on the average once in every x years” must be right. It needs demonstrating not asserting. Still, the thrust is clear: stuff must be expected to happen far more often than "once in a 100 years implies" to almost everyone.

Demetrius said...

I have been hurricane watching for many years now and have read up some stuff. It is all very complex and unpredictable. There are not that many in any year and they display the old statistical rule that the smaller the size of the sample the greater the deviation from the mean.

CityUnslicker said...

Nigel, insurance was not my point. My point is that if your capital is destroyed you are no longer rich and therefore are deserving of help.

The OECD (since you all ask - basically says the countries are too rich. But if all your capital is destroyed you are no long rich. The OECD logic an only be applied retrospectively - next year, as these poor places collapse, the OECD will decide they are very poor.

As I said, the OECD rules would have prevented the Marshall Aid, after all Europe was the richest place in the world and responsible for fighting a world war up to 1945 - how could it qualify for aid in 1945?


Electro-Kevin said...

My problem is this:

Communities have grown up in risky areas around rich people who are there to avoid paying tax in our own country.

We have lots of tower blocks that need cladding removed - at a time of grave shortage of tower blocks because we are helping the third world by importing poverty rather than by exporting wealth.

It is not for basement wine vault dwellers to tell us where to send the money (though I happen to think that we should send it - whilst stopping other Aid.)

One thing is sure.

There are two creatures that will survive a nuclear holocaust. Cockroaches and Richard Branson.

Electro-Kevin said...

I think your post made some excellent points btw.

Electro-Kevin said...

"There are two creatures that will survive a nuclear holocaust. Cockroaches and Richard Branson."

I wouldn't like to bet on which has the thickest skin.

CityUnslicker said...

EK. It will be really interesting to see how much Branson sinks into re-building. My heart says he will do a lot, my head says he will scarper.

Electro-Kevin said...

He wants to legalise drugs, he wants to Remain in the EU. He does not want to pay towards the costs of either - so I can't see anything much changing in the BVI.

(I went to his house party once - he sent us the bill. Not a joke.)