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11/29/2005
  Statistical Ignorance

Understanding statistics is more important than voting these days. However, most people, and particularly press people don't understand basic statistical principles.

Example: today's housing numbers. Yesterday housing was "cooling". Today it looks warm again:

As we have warned, the abundance of global data due out this week could cause a great deal of volatility in the currency markets. Today, strong US data has helped the dollar recuperate much of yesterday's losses.

...

Sales of new homes surged 13% to a record high of 1.424 million.

That seems positive, right? Well look at this:

The monthly sequential sales number is a 13% "increase" subject to a margin of error of plus or minus 17.7%. The year-over-year "increase" of 9% is subject to a margin of error of plus or minus 18.2%.

Statistically, those housing numbers tell you very little since the margin of error is much HIGHER than the measured change.

Who knows what 95% confidence means? Who knows what confirmation bias is?

There are numbers everywhere today, and people take them and run. No one has time to evaluate the statistical relevance of data anymore...

 


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