Max Scheiber | The numbers will set you free
Maximal Freedom | Picking up the phone can save a few regrets
October 8, 2012, 1:11 am·
If you don’t understand math, you are useless and dangerous.
You might think this statement is unfair and say: How am I useless because I can’t do calculus? I haven’t had to use it since senior year of high school, I’ve forgotten everything.
That’s fine. You’ll never need to do U-substitution again or recall the quadratic formula, either. Would you expect someone to have memorized Ulysses or give a dissertation on Dostoevsky? Of course not.
But we expect those around us to be able to read something — a newspaper article, a short story or a letter from a friend — and grasp its main point. We should also expect everyone to be capable of understanding basic principles of statistics, doing mental math and using proper logic.
But reading is easy. I’m just not good at math!
That’s no excuse. Anything worth doing requires time and effort. And properly understanding numbers is certainly worthwhile. Sometimes it’s even a matter of health and wealth.
Parents who refuse to give their children the measles vaccine, for example, put their kids at a relatively high risk of catching the disease and increase the probability that it will spread in their community. Given the infinitesimal risk of getting sick or dying from the vaccine, parents who gamble with these odds reveal their statistical illiteracy.
In a similar vein, most Americans take out loans and use credit cards — both of which have compounding interest rates and harsh penalties for missing payments. People who take on too much debt and put off paying it lack a fundamental understanding of exponential growth.
These examples make it clear that we should master basic numeracy.
You’d be surprised by how many professionals in the quantitative field need to do the same.
Kweku Adoboli, a former trader at the Swiss bank UBS, was one of those professionals. After losing money on some positions, he allegedly started progressively increasing the size of his trades. This method of doubling a bet after a loss to cover said loss is known as the Martingale strategy. Adoboli is accused of doing this and losing UBS $2.3 billion.
Theoretically, if Adoboli (or anyone for that matter) had enough cash, he would have eventually made his money back on the Martingale. However, there is a small probability that one might go broke before winning the bet. In any one instance, the chance of going broke is small. However, those small chances add up over time until someone goes broke. In this case, that someone was Adoboli.
Given all of the downsides of numerical illiteracy, how can you improve yourself?
Well, you currently attend a world-class university that offers courses in basic statistics, such as Statistics 101 and Sociology 120. These classes teach students how to properly interpret the quantitative world around them. If you’re down for a course on logic, another option is Computer and Information Science 160, which will teach you how to formally prove that something is true.
Your learning isn’t limited to the classroom, though. You are constantly bombarded with figures and facts. Question everything. Take it upon yourself to delve deeper into numbers to determine the truth.
Most of us know of someone that died in a drunk driving accident. That someone probably thought — it’s just one time, nothing bad will ever happen — before taking the wheel.
Statistics prove that driving drunk increases the chances of getting into a car crash. An intoxicated person with a blood alcohol content of 0.08 — the legal limit for driving — is 11 times more likely to get into a single-vehicle fatal accident than a sober person. Had your friend remembered that probability does not choose where it strikes, perhaps he or she wouldn’t have gotten into the car that night.
You owe it to yourself and the world around you to learn some math.
After all, you don’t want to end up trading double-or-nothing on the stock market while incurring credit card debt and refusing to vaccinate your kids.
Max Scheiber is a College and Wharton sophomore from Boca Raton, Fla. His email address is firstname.lastname@example.org. Follow him @MaxScheiber. “Maximal Freedom” appears every other Monday.