Chances of a 'century storm'

[GwydionM]

Alan Greenspan has claimed that the current crisis was due to a 'once in a century' credit storm. A lot of people would disagree, but this isn't the place to discuss that.

What I'd like to know is that if an event is 'once in a century' in the sense of 1 per 100 chance per year, what are the chances of 25 years clear? My first guess was 75% but that's probably wrong. You could have two in a year, that would be 1 in 10,000. Or two in a 25-year period, I'm not sure of the odds. But there could also be long clear periods, just by chance.

------------------------------
An old man who lives in the UK

 

[bam720]

I'm going to answer the actual questions asked, but instead provide a link to a more general answer.

http://en.wikipedia.org/wiki/100-year_flood

You can plug in the numbers and find out. I know that my Home Owners Insurance will be a little higher because i live in a "500 year" flood plain.

 

[KornGeek]

Each year, you have a 0.99 chance of not having it happen. Thus, for 25 years, you have 0.99 ^ 25 chance of it being all clear.

 

[Olaf Doschke]

Yes KornGeeek,

if you take the "once in a century" probability as it's layed out in the wiki article about floods, that's correct.

The wiki article tells about the 100-year flood, that it has approximately a 63.4% chance of occurring in any 100-year period, not a 100 percent chance of occurring.

The current crisis is felt as a real 100% chance of occuring, because it happend in the 1930ies too, but in fact we don't have that long experience with money and banking, than we have with water... Also this is based on human behaviour and stupidity, not on physics laws like gravity. And even though the water has no own free will and only follows laws like gravity, it's unpredictable, as it's also depending on wheater, for which the same applies.

It's man made and therfore I think it's totally wrong to think in probabilities. We have a case of some bankers having had shortsighted thoughts about the working of some of their products. This happens all the time.

Bye, Olaf.