Blog feed from www.misleadingindicators.com

Based on the book by Phil Green and George Gabor, misLeading Indicators: How to Reliably Measure your Business.

Reinhart and Rogoff story shows how important it is to check your indicators

This month two academic researchers showed that there were errors in the calculations behind the claim by economists Carmen Reinhart and Kenneth Rogoff that the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one [...]

Top ten reasons for reading misLeading Indicators: How to Reliably Measure your Business

There are many books that tell you what to measure to succeed in a business strategy or to improve business performance. Ideas on what to measure may indeed be very useful. But these ideas won’t help you, and may even be harmful, if you do not know whether what you are measuring is misleading you.  [...]

How Western Electric rules mislead in statistical process control

The statistical model behind control charts for in-control processes is based on the assumption a Gaussian process with no autocorrelation (i.e. independent) with a constant mean and constant variance: in other words a white noise process. The various Western Electric rules try to find patterns that are not white noise, and thus show that the [...]

The Department of Justice will have a tough time proving that Standard and Poors “inflated” its bond ratings.

The US Department of Justice has launched a civil law suit against the rating agency Standard & Poors, alleging “S&P issued inflated ratings that misrepresented the securities’ true credit risks” and that “S&P falsely represented that its ratings were objective, independent, and uninfluenced by S&P’s relationships with investment banks when, in actuality, S&P’s desire for [...]

The bond trader’s fallacy

A few weeks ago one of us was sitting beside a retired bond trader at a luncheon. Both  interlocutors being interested in probability and its applications in business, there ensued a disagreement about whether in a sequence of coin flips the flips were independent. The bond trader argued that anyone who believed they were not [...]

Lance Armstrong doping case and bond defaults show challenges of probabilistic reasoning

In an earlier blog post (here) we wrote that, given the evidence available to us at the time, Lance Armstrong was probably not guilty of doping. The main line of our argument was that hundreds of doping tests from certified laboratories using accepted procedures had not found dope.  We restricted the evidence to this, in the [...]

The Curse of Kelvin

“The mental health effects of any given disaster are related to the intensity of the exposure of the event. Sustaining personal injury and experiencing the injury or death of a loved one in the disaster are particularly potent predictors of psychological impairment.” The research paper from which the above quote was taken was published shortly [...]

Core earnings: Is new metric misleading?

Brian Milner, a journalist at the Globe and Mail’s Report on Business, picked up on our blog post on core earnings and cited it in this article this morning.

Core earnings don’t get to the heart of profitability

A couple of weeks ago Manulife Financial, a large Canadian insurance company, introduced a new metric called “core earnings.” They reported a net loss of $227 million in the third quarter, but $556 million in core earnings. The problem with core earnings as an indicator is that it attempts to determine the revenue from the [...]

The biggest storm? That’s hot air.

After every big storm there are always attempts to rank it to see how it compares to other biggies. That certainly happened with this week’s “Frankenstorm” Sandy (for example here and here). There are so many ways to rank storms that there will likely be some way every major storm will earn an impressive rank. [...]