Saturday, February 5, 2011

Analytics, Astrology, and V-day Objectives

What predictive analytical tools do insurance companies use to manage long-term risk? The usual ones and then this. Using customer data such as month of birth, The Allstate Insurance company grouped observations into 12 buckets. To make it more fun, they labeled these buckets under their star sign ("Raashee" in Sanskrit) as a V-day joke. Then they tracked the accident levels for each of the groups. The topper in this list of trouble makers are Virgos, characterized by AllState as "worried and shy". Of course, while this was a bit of harmless fun for many people, and AllState said this was joke that fell apart, Virgos and Leos have a good reason to worry in the current economic climate, since their rates may be relatively higher because of a "pre-existing" condition. In the end, AllState went into damage-control mode and assured customers that their star-sign was never and will never be held against them :)

Assuming these results are real, it raises some interesting and entertaining questions. Is there at least some apparent correlation between your date of birth and your future on and off the road? Does the popular observation that a significant proportion of babies are conceived during the downtime in winter and thus born around August (Leo-Virgo time), have something to do these results?

When it comes to long-term decisions such as match-making, Rashee and celestial planetary alignments matter to many Indians, regardless of economic and educational levels. The recent Bollywood flick 'What's your Rashee'? comes to mind.

Indians love weddings, and a significant fraction of the marriages 'arranged' in India (which would amount to a healthy fraction of the total weddings in the world at any moment!) are based on the compatibility of horoscopes that must be determined by an expert astrologer. A 'matching algorithm' is run to determine the compatibility of horoscopes on various attributes. The outcome is an integer and a certain lower threshold must be met for the alliance to be considered worthwhile. The bigger the score, the brighter the predicted future of the proposed marriage. An unattainable upper bound for this score among mortals is a perfect 36/36 (?) which was achieved for the divine pair of Sri Rama (an Avatar of Lord Vishnu, the preserver) and his consort, Mother Sita (the daughter of Goddess Earth), whose perfect union is the basis of one of the two great Indian epics, the Ramayana.

In today's world, horoscope-matching is a fun and educative exercise for Indian couples ready to take the plunge, while also connecting with many thousand years of uninterrupted native culture. However, the problem arises when matchmakers begin to take astrological (or analytical) predictions way too seriously, and at the expense of every other reasonable consideration such as the 'content of a person's character', as the noble Dr M. L. King Jr. said. Thus it is not surprising that even the most 'secular' of Indian politicians is a fanatical follower of astrology. As members of generation-A (the analytical generation), we would love to think that we are different but things haven't changed all that much. One only needs to look at the "analytics" employed by online dating sites. The 'Analytic Age' blog had an interesting post relating to this a while ago. When it comes to making strategically useful match-making predictions, today's analytics is not much of an improvement.

Tactical Level
On the other hand, when it comes to tactics, banking on stars to bail us out on V-days and anniversaries is a recipe for 'crash and burn'. In this rare instance, a large variance can actually be good since it is the opposite of 'routine and boring', in keeping with the 'variety seeking' behavior of shoppers observed in descriptive retail analytics. But this risk is at odds with the eventual reward so we must choose our objective with care. V-days follows a geometric probability distribution, where you have to win every year just to stay in the game. One big meltdown and you are out, regardless of the big wins you had in the past when your mojo peaked. By all accounts, the expectation of tolerance on these days is ruthlessly Markovian, so remember the gambler's ruin and plan accordingly.

Operational Level
Under the assumptions of our tactical model, the default aim on the eve of any given V-day is to minimize maximum regret so we can live to see another V-day. On the other hand, if we want to go for it on 4th down, then maximizing expected value it is. However, the operational plan must have an ability to fall-back to the default objective. This way we can contain second-order effects (collateral damage) while also constraining our primary losses.

This will be a submission toward the February Informs blog challenge on 'OR and Love'.


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