The Foundations of Statistics

"This book is by a famous statistician who is now dead. Savage didn’t fall into the trap of DeGroot, who dismissed catastrophic risks. Instead he went to the other extreme. Savage’s approach can focus solely on rare events. So DeGroot underestimates rare events and Savage’s approach (which was very controversial at the time) can underestimate frequent events. That is no good either. I don’t think he understood that there was anything else. I think that the classical theories were all like DeGroot’s. Savage saw their limitations and went the other way. But he didn’t understand that you can take both frequent and rare events seriously simultaneously. This is what my work does. Savage has been very valuable in showing the importance of rare events because they are the moment of change when something totally unexpected happens. That is what you call change and what he was focused on. And that is what a catastrophe is – a rare event that has monumental consequences. So, based on these very important works, my work doesn’t fall into one or the other extremes. I don’t focus on frequent or on rare events. I integrate both. That is right. It does work mathematically. It is unexpected that it should work, and I can understand why people shied away earlier from doing the statistics of change because you get treated like you are a sorcerer or a witch. I often joke that if I had lived 200 years ago I would have been tried as a witch and burned at the stake. I started with something that wasn’t necessarily logical and did it in a free way without thinking about what my colleagues thought, which is a huge risk to take in academia. Freethinking is considered dangerous. What happened to Savage was really savage. He suffered a great deal of criticism. Support Five Books Five Books interviews are expensive to produce. If you're enjoying this interview, please support us by donating a small amount . As for me I have had some positive responses but don’t be fooled. I get very positive responses because people right now are starting to understand we had better open our eyes and do something differently since what we are doing isn’t working. We have run into New Orleans without preparation when we knew this could happen. We have run into a global financial crisis when we saw it coming. The only place that has recently got it right is the way that Chile prepared for 8.8 earthquakes, which, even though they don’t happen that often, are still a good thing to prepare for. As a result Chile sustained fewer losses than Haiti , who had a much smaller earthquake. In general, as Posner says, we seem to be paralysed or deliberately ignore catastrophic risks. The theory I developed is the idea that, even though DeGroot’s and Savage’s theories seem to be radically opposed, it is possible to put the two extremes together. I show they are part of the same universe and they can co-exist. Sometimes you are in one position and sometimes you are in the other. Our current experimental work in France and with the US Air Force shows that when you make a transition from a sequence of normal events to one that is catastrophic, people start oscillating widely with their decisions. It is almost like they become unpredictable. But they don’t, that is a normal reaction – it is rational and my work shows that. And this is not purely theoretical it is also experimentally tried. Experiments can’t prove a theory, they can only be consistent with a theory, or can disprove it. Our experiments sustain my theory."