Re:Flaw of Averages (2002)
by wcrossbow on Tuesday January 04, 2022 @02:36PM
(#29799090)
The example is not great. I wouldn't blame the use of averages there, but rather not realizing that when the cost of excess/spoil is not symmetrical the optimal answer in terms of minimizing average cost is not going to be the forecasted value regardless of how it was obtained.
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Well, you don't necessarily want to optimize expected return alone, since you also care about the probability of ruin. Which is why Monte Carlo's are great, you get everything for free without having to think very hard. (All particle physicists are trained to reach for a toy MC before thinking about anything :) ).