An Argument for Statistics (Part 1)

I could go on with incriminating quotes throughout history about statistics:

     “There are three types of lies — lies, damn lies, and statistics.”
     –Benjamin Disraeli

     “Facts are stubborn things, but statistics are pliable.”
     –Mark Twain

     “If your experiment needs a statistician, you need a better experiment.”
     –Ernest Rutherford

     “All statistics have outliers.”
     –Nenia Campbell, Terrorscape

     “There are two kinds of statistics, the kind you look up and the kind you make up.”
     –Rex Stout, Death of a Doxy

During my undergrad years I saw a number of students develop an antipathy toward statistics because it was a subject that either clicked or totally did not. I think much of the negative press statistics gets is partially a result of the fact that many people simply do not understand it.

I have a decent familiarity of statistics. I took an advanced stats class in undergrad and I used statistics in my published manuscript as well as my Pharm.D. research project. That education has made me statistically-minded, which is probably one reason option trading feels comfortable. I constantly think in terms of sample sizes and the relevance of conclusions. I believe these are things anyone on the path to trader success should understand.

I agree with some of the negativity reflected in the quotes above. Just because you have a statistic does not mean it’s a valid one. Scrutiny must be applied to see if the experimental design makes sense and was conducted properly.

Most people only know about descriptive statistics: numbers used to summarize and describe data. These are your averages, standard deviations, and ranges. These are found everywhere when talking about sports. Descriptive statistics can certainly be skewed to include certain things and to exclude others, which is where much of the lying comes from.

I believe another branch is equally, if not more important than descriptive statistics. I will talk about that next time.