Decision theory and real estate development: a note on uncertainty

Real estate development appraisal is a quantification of future expectations. The appraisal model relies upon the valuer/developer having an understanding of the future in terms of the future marketability of the completed development and the future cost of development. In some cases the developer has some degree of control over the possible variation in the variables, as with the cost of construction through the choice of specification. However, other variables, such as the sale price of the final product, are totally dependent upon the vagaries of the market at the completion date. To try to address the risk of a different outcome to the one expected (modelled) the developer will often carry out a sensitivity analysis on the development. However, traditional sensitivity analysis has generally only looked at the best and worst scenarios and has focused on the anticipated or expected outcomes. This does not take into account uncertainty and the range of outcomes that can happen. A fuller analysis should include examination of the uncertainties in each of the components of the appraisal and account for the appropriate distributions of the variables. Similarly, as many of the variables in the model are not independent, the variables need to be correlated. This requires a standardised approach and we suggest that the use of a generic forecasting software package, in this case Crystal Ball, allows the analyst to work with an existing development appraisal model set up in Excel (or other spreadsheet) and to work with a predetermined set of probability distributions. Without a full knowledge of risk, developers are unable to determine the anticipated level of return that should be sought to compensate for the risk. This model allows the user a better understanding of the possible outcomes for the development. Ultimately the final decision will be made relative to current expectations and current business constraints, but by assessing the upside and downside risks more appropriately, the decision maker should be better placed to make a more informed and “better”.

Decision-theoretic designs for phase II clinical trials allowing for competing studies

This article describes an approach to optimal design of phase II clinical trials using Bayesian decision theory. The method proposed extends that suggested by Stallard (1998, Biometrics54, 279–294) in which designs were obtained to maximize a gain function including the cost of drug development and the benefit from a successful therapy. Here, the approach is extended by the consideration of other potential therapies, the development of which is competing for the same limited resources. The resulting optimal designs are shown to have frequentist properties much more similar to those traditionally used in phase II trials.

Bayesian design and conduct of phase II single-arm clinical trials with binary outcomes: a tutorial

The aim of phase II single-arm clinical trials of a new drug is to determine whether it has sufficient promising activity to warrant its further development. For the last several years Bayesian statistical methods have been proposed and used. Bayesian approaches are ideal for earlier phase trials as they take into account information that accrues during a trial. Predictive probabilities are then updated and so become more accurate as the trial progresses. Suitable priors can act as pseudo samples, which make small sample clinical trials more informative. Thus patients have better chances to receive better treatments. The goal of this paper is to provide a tutorial for statisticians who use Bayesian methods for the first time or investigators who have some statistical background. In addition, real data from three clinical trials are presented as examples to illustrate how to conduct a Bayesian approach for phase II single-arm clinical trials with binary outcomes.

The Bayesian revolution in genetics

Bayesian statistics allow scientists to easily incorporate prior knowledge into their data analysis. Nonetheless, the sheer amount of computational power that is required for Bayesian statistical analyses has previously limited their use in genetics. These computational constraints have now largely been overcome and the underlying advantages of Bayesian approaches are putting them at the forefront of genetic data analysis in an increasing number of areas.

A simple analysis of thermodynamic properties for classical plasmas: I. theory

By eliminating the short range negative divergence of the Debye–Hückel pair distribution function, but retaining the exponential charge screening known to operate at large interparticle separation, the thermodynamic properties of one-component plasmas of point ions or charged hard spheres can be well represented even in the strong coupling regime. Predicted electrostatic free energies agree within 5% of simulation data for typical Coulomb interactions up to a factor of 10 times the average kinetic energy. Here, this idea is extended to the general case of a uniform ionic mixture, comprising an arbitrary number of components, embedded in a rigid neutralizing background. The new theory is implemented in two ways: (i) by an unambiguous iterative algorithm that requires numerical methods and breaks the symmetry of cross correlation functions; and (ii) by invoking generalized matrix inverses that maintain symmetry and yield completely analytic solutions, but which are not uniquely determined. The extreme computational simplicity of the theory is attractive when considering applications to complex inhomogeneous fluids of charged particles.

Chronology for the Aegean Late Bronze Age 1700-1400 BC

Radiocarbon (carbon-14) data from the Aegean Bronze Age 1700-1400 B.C. show that the Santorini (Thera) eruption must have occurred in the late 17th century B.C. By using carbon-14 dates from the surrounding region, cultural phases, and Bayesian statistical analysis, we established a chronology for the initial Aegean Late Bronze Age cultural phases (Late Minoan IA, IB, and II). This chronology contrasts with conventional archaeological dates and cultural synthesis: stretching out the Late Minoan IA, IB, and II phases by similar to 100 years and requiring reassessment of standard interpretations of associations between the Egyptian and Near Eastern historical dates and phases and those in the Aegean and Cyprus in the mid-second millennium B.C.

Investigation of support vector machine for the detection of architectural distortion in mammographic images

This paper investigates detection of architectural distortion in mammographic images using support vector machine. Hausdorff dimension is used to characterise the texture feature of mammographic images. Support vector machine, a learning machine based on statistical learning theory, is trained through supervised learning to detect architectural distortion. Compared to the Radial Basis Function neural networks, SVM produced more accurate classification results in distinguishing architectural distortion abnormality from normal breast parenchyma.

Universality of rain event size distributions

We compare rain event size distributions derived from measurements in climatically different regions, which we find to be well approximated by power laws of similar exponents over broad ranges. Differences can be seen in the large-scale cutoffs of the distributions. Event duration distributions suggest that the scale-free aspects are related to the absence of characteristic scales in the meteorological mesoscale.

Judgments, forecasts and decisions: an analysis of fund managers over time

Decision theory is the study of models of judgement involved in, and leading to, deliberate and (usually) rational choice. In real estate investment there are normative models for the allocation of assets. These asset allocation models suggest an optimum allocation between the respective asset classes based on the investors’ judgements of performance and risk. Real estate is selected, as other assets, on the basis of some criteria, e.g. commonly its marginal contribution to the production of a mean variance efficient multi asset portfolio, subject to the investor’s objectives and capital rationing constraints. However, decisions are made relative to current expectations and current business constraints. Whilst a decision maker may believe in the required optimum exposure levels as dictated by an asset allocation model, the final decision may/will be influenced by factors outside the parameters of the mathematical model. This paper discusses investors' perceptions and attitudes toward real estate and highlights the important difference between theoretical exposure levels and pragmatic business considerations. It develops a model to identify “soft” parameters in decision making which will influence the optimal allocation for that asset class. This “soft” information may relate to behavioural issues such as the tendency to mirror competitors; a desire to meet weight of money objectives; a desire to retain the status quo and many other non-financial considerations. The paper aims to establish the place of property in multi asset portfolios in the UK and examine the asset allocation process in practice, with a view to understanding the decision making process and to look at investors’ perceptions based on an historic analysis of market expectation; a comparison with historic data and an analysis of actual performance.

Disentangling multi-level systems: averaging, correlations and memory

We consider two weakly coupled systems and adopt a perturbative approach based on the Ruelle response theory to study their interaction. We propose a systematic way of parameterizing the effect of the coupling as a function of only the variables of a system of interest. Our focus is on describing the impacts of the coupling on the long term statistics rather than on the finite-time behavior. By direct calculation, we find that, at first order, the coupling can be surrogated by adding a deterministic perturbation to the autonomous dynamics of the system of interest. At second order, there are additionally two separate and very different contributions. One is a term taking into account the second-order contributions of the fluctuations in the coupling, which can be parameterized as a stochastic forcing with given spectral properties. The other one is a memory term, coupling the system of interest to its previous history, through the correlations of the second system. If these correlations are known, this effect can be implemented as a perturbation with memory on the single system. In order to treat this case, we present an extension to Ruelle's response theory able to deal with integral operators. We discuss our results in the context of other methods previously proposed for disentangling the dynamics of two coupled systems. We emphasize that our results do not rely on assuming a time scale separation, and, if such a separation exists, can be used equally well to study the statistics of the slow variables and that of the fast variables. By recursively applying the technique proposed here, we can treat the general case of multi-level systems.