Monday, January 7, 2013

Basic Stats - Why does it matter?

In a previous blog I described some very basic concepts in descriptive stats. Why does this matter to the typical consumer?

One of the most important things a consumer needs is the knowledge that enables them evaluate advertisements, news articles, political speeches, business portfolios, and other information.

Often, these sources of information will use some form of statistics to describe some policy, test result, financial statement or other numerical summary or analytical result. Knowing basic stats will help the consumer to better understand these results and when to question the results.


The examples presented here cover most of the situations that the ordinary consumer will encounter; however, more advance analysis requires additional insight which may be answered in my Frequently Asked Modeling Questions (FAMQ).

                                                        Return to FAMQ

  • Central Tendency - Question whether a measure of central tendency is using median or mean. Often a result is presented as the average, but is that the average of all numbers (mean) or the value for the average individual (median). This is particularly true for monetary data (income, salary, net worth, price of items, ...) which are often negatively skewed. The mean makes the "average" seem higher and the median makes it look lower.
  • Dispersion - When looking at dispersion it is important to question what it is when it is omitted from a report. Sometimes two populations will be compared by reporting only the  mean or median. These values may differ greatly, but in order to truly compare the two populations you need to know how the values vary. For example, one could be comparing two realty companies based on how long it takes them to sell a property. One could be higher than the other but have a much wider dispersion
  • Samples - Sampling is often biased and not randomly selected. The example above on realtors could have bias by comparing high priced properties for one company and low priced properties for the other firm.

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