Gary Smith - Standard Deviations

MORE ADVANCE PRAISE FOR STANDARD DEVIATIONS

Gary Smiths Standard Deviations is both a statement of principles for doing statistical inference correctly and a practical guide for interpreting the (supposedly) data-based inferences other people have drawn. Cleverly written and engaging to read, the book is full of concrete examples that make clear not just what Smith is saying but why it matters. Readers will discover that lots of what they thought theyd learned is wrong, and theyll understand why.

BENJAMIN M. FRIEDMAN
William Joseph Maier Professor of Political Economy, Harvard University

Standard Deviations shows in compelling fashion why humans are so susceptible to the misuse of statistical evidence and why this matters. I know of no other book that explains important concepts such as selection bias in such an entertaining and memorable manner.

RICHARD J. MURNANE
Thompson Professor of Education and Society, Harvard Graduate School of Education

We all learn in school that there are three kinds of lies: lies, damn lies, and statistics. Gary Smiths new book imparts true substance to this point by setting forth myriad examples of how and why statistics and data-crunching at large are susceptible to corruption. The great risk today is that the young will forget that deductive logic is vastly more powerful than inductive logic.

HORACE WOODY BROCK
President, Strategic Economic Decisions, Inc.

Statistical reasoning is the most used and abused form of rhetoric in the field of finance. Standard Deviations is an approachable and effective means to arm oneself against the onslaught statistical hyperbole in our modern age. Professor Smith has done us all a tremendous service.

BRYAN WHITE
Managing Director, BlackRock, Inc.

Its entertaining, its gossipy, its insightfuland its destined to be a classic. Based on a lifetime of experience unraveling the methodical blunders that remain all too frequent, this book communicates Gary Smiths wisdom about how not to do a data analysis. Smiths engaging rendering of countless painful mistakes will help readers avoid the pitfalls far better than merely mastering theorems.

EDWARD E. LEAMER
Distinguished Professor and Chauncey J. Medberry Chair in Management, UCLA

Standard Deviations will teach you how not to be deceived by lies masquerading as statistics. Written in an entertaining style with contemporary examples, this book should appeal to everyone, whether interested in marriages or mortgages, the wealth of your family, or the health of the economy. This should be required reading for everyone living in this age of (too much?) information.

ARTHUR BENJAMIN
Professor of Mathematics, Harvey Mudd College and author of Secrets of Mental Math

STANDARD DEVIATIONS

STANDARD
DEVIATIONS

FLAWED ASSUMPTIONS,
TORTURED DATA, AND
OTHER WAYS TO LIE
WITH STATISTICS

GARY SMITH

DUCKWORTH OVERLOOK

This eBook edition 2014
First published in 2014 by
Duckworth Overlook

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2014 by Gary Smith

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

The right of Gary Smith to be identified as the Author of the Work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988.

A catalogue record for this book is available from the British Library

ISBNs

Paperback: 978-0-7156-4914-5

Mobi: 978-0-7156-4973-2

ePub: 978-0-7156-4974-9

Library PDF: 978-0-7156-4975-6

To my wife Margaret and my children Josh, Jo, Chaska, Cory, Cameron, and Claire

CONTENTS

STANDARD DEVIATIONS

INTRODUCTION

w E LIVE IN THE AGE OF BIG DATA. THE POTENT COMBINATION of fast computers and worldwide connectivity is continually praisedeven worshipped. Over and over, we are told that government, business, finance, medicine, law, and our daily lives are being revolutionized by a newfound ability to sift through reams of data and discover the truth. We can make wise decisions because powerful computers have looked at the data and seen the light.

Maybe. Or maybe not. Sometimes these omnipresent data and magnificent computers lead to some pretty outlandish discoveries. Case in point, serious people have seriously claimed that:

These claimsand hundreds more like themappear in newspapers and magazines every day even though they are surely false. In todays Information Age, our beliefs and actions are guided by torrents of meaningless data. It is not hard to see why we repeatedly draw false inferences and make bad decisions. Even if we are reasonably well informed, we are not always alert to the ways in which data are biased or irrelevant, or to the ways in which scientific research is flawed or misleading. We tend to assume that computers are infalliblethat no matter what kind of garbage we put in, computers will spit out gospel. It happens not just to laymen in their daily lives, but in serious research by diligent professionals. We see it in the popular press, on television, on the Internet, in political campaigns, in academic journals, in business meetings, in courtrooms, and, of course, in government hearings.