Tuesday, December 1, 2009

Reflections on an old Chinese statistical joke


I've mentioned in the past the value I'm seeing in a design book (Measurement, Design and Analysis, by Pedhazur & Schmelkin) I'm reading for a course. The authors reference a book by H. Zeisel (Say it with figures) who "pointed out that, according to an old Chinese statistical joke, the rate of mortality among people who are visited by a doctor is much higher than among those who are not visited by a doctor."
 

Reflect for a moment on this joke. Once you get it, think about how this applies to the world of GIPS(R) verifications, when a non-random approach is used.

If the verifier selects only a certain group of composites to review (e.g., "marketed"), might it be quite likely that they will conform with the standards, especially if the firm being verified knows that there's a greater likelihood of only these being checked?

These non-random verifications can be likened to what Pedhazur & Schmelkin refer to as "quasi-experimental designs," "that suffer, to a greater or lesser extent, from serious shortcomings and pitfalls...[and] that utmost circumspection be exercised in the interpretation of the results, and in conclusions...based on them."

Perhaps I'm beginning to sound like a broken record (whatever a "record" is), but by continuing to periodically bring this subject up I am hopeful that the GIPS Verification Subcommittee will take action to come out in opposition to such practices as they are fraught with problems.

1 comment:

  1. Dave... I couldn't agree more. With the CFA institute focusing on a standard forcing disclosure of being (or not being) verified, the value and credibility verification comes into question. The Nowel Group has firsthand experience in analysing the data of a firm (not to me mentioned) which has been consistently "verified" by a well known verifier (not to be mentioned), and found to be terribly OUT of comppliance. Giving the verifier the "benefit of the doubt", it most likely caused by only doing a sampling within the "marketed" compposites and using the "ostrich approach" on everything else. Before forcing a disclosure on the issue of verification, perhaps the CFA should initiate a process to actually establish standards for verification, a process to "test" compliance to these standards (verify the verifier), and a "license" to perform verifications which can be revolked for non-compliance. Then verification might actually have value and mean something. Otherwise forcing disclosure of an event that may have little or no value only serves to make the CFA look ridiculous.

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