Letters
pareidolia Blues
In his review of Proofiness: The Dark Arts of Mathematical Deception, by Charles
Seife (November/December 2012), Jeffrey Schuh quotes Seife’s terminology for
various categories of proofiness. I would
like to point out that Seife’s use of the
pseudo-word randumbness, obviously
chosen for its humor, might have been
replaced by pareidolia, although this
would require some of Seife’s readers to
use a search engine or a dictionary (or,
at the least, know the word to describe
how they see an elephant in the clouds).
Michael A . Shumate
galveston, texas
Contingencies in Retirement
Mark Shemtob makes three excellent points in his article, “Measuring the
Likelihood of Retirement Planning Success,” in the November/December issue
of Contingencies. First, Monte Carlo simulation is a very powerful tool in analyzing
a potential retirement plan. Second, like
Sisyphus pushing his boulder up the hill,
10 CONTINGENCIES JAN | FEB. 13
a retirement plan is never done. The
plan must be reviewed periodically and
after significant events such as marriage,
death, a change in tax rates, or a change in
objectives. Lastly, the Monte Carlo results
need to be interpreted by an expert. How-ever, his first point needs some cautions.
A stochastic model is only as good as
its underlying methods and assumptions.
For example, are historical correlations
between various asset classes still valid in
today’s economy? What are the frequency distributions of the model’s variables?
Do investment returns and inflation follow the normal (Gaussian) distribution?
Nassim Nicholas Taleb’s The Black Swan
relates many examples of an assumed
Gaussian distribution that is later disproved by experience. Far too often a
small tail event is actually a fat tail event,
such as the economic meltdown in late
2008. How many “storms of the century”
have we experienced in the past 10 years?
On the other hand, trying to protect
against all contingencies may result in
a lower standard of living in retirement
than is necessary, with a significantly
larger amount going to heirs than was
planned. The converse is also true. Retirement planning is not for the faint of
heart!
I heartily agree that a Monte Carlo simulation is a powerful retirement
planning tool, but its results need to be
viewed with a grain of salt, even by experts. (Mr. Taleb would say especially by
experts.) Congratulations to Mr. Shemtob on a very thoughtful article.
Robert J. Rietz
old Fort, n.C.
Teaching Tips
Herschel Day’s “Notes From the College Classroom,” in the September/October
issue of Contingencies, resonated with
me. I, too, made the transition from busi-
nessman to academic when, after retiring
as president of Mutual of America, I was
appointed a visiting executive professor
at the Wharton School of the University
of Pennsylvania.
