Turning Data into

Information
for Gaining Wisdom

Where Have We Gone?

Dr. Welker, Business Statistics
 Wisdom Gained
Information developed
through the use of statistics has …
• enhanced our understanding of how life
works,
• helped us learn about each other,
• allowed control over some societal issues, and
• helped individuals make informed decisions.
Nearly every area of knowledge
has been advanced by statistical studies.
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Go Beyond the Data
Extent to which data descriptions can be
generalized rests on two issues:
• What group of individuals was
measured?
• Whether or not randomization was
used to assign conditions.
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Random, Representative,
or Restrictive Sample?
“Inferences to populations can be drawn from
random sampling studies, but not otherwise.”

But true random samples almost impossible to obtain.

Fundamental Rule for Using Data for Inference

is that available data can be used to make inferences
about a much larger group if the data can be
considered to be representative with regard to
the question(s) of interest.
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 Randomized Experiments,
Observational Studies, and Causal
Conclusions
Most common error by media:
conclude a causal relationship established
when not warranted by the way the study was
conducted.

Rule for Concluding Cause and Effect

cause-and-effect relationships can
be inferred from randomized experiments,
but not from observational studies.
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 Using Non-Statistical Considerations
to Assess Cause and Effect
Here are some hints that may suggest cause
and effect from observational studies:
• There is a reasonable explanation of
cause and effect.
• The connection happens under varying
conditions in a number of studies.
• Potential confounding variables are ruled
out by measuring and analyzing them.
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Transforming Uncertainty
Into Wisdom
The field of statistics exists because we live in a
world filled with uncertainly and variability
• As individuals, we need to make personal decisions.
• As a society, we want to have some control
over things.
• As intelligent and curious beings, we want
to understand things.
• As social and curious beings, we want to
know about other people.
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Making Personal Decisions
Think about decision in framework of hypothesis
testing and consider consequences of errors.

H0: I will be better off if I take no action.

Ha: I will be better off if I do take action.

• Type 1 error: taking action when would

have been better off not doing so.
• Type 2 error: taking no action when would
have been better off taking action.

Dr. Welker, Business Statistics 8

Example Surgery or Uncertainty
Doctor discovers lump and cannot tell if malignant or
benign. Can have affected organ removed with
surgery or wait/see if lump continues to grow/spread.
H0: The lump is benign.
Ha: The lump is malignant.

Statistical information may be available to assess

likelihood of each hypothesis and doctor could provide
reasonable probabilities. Then must weigh possible
consequences of each choice.
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Use Statistics in Your Work
… to make decisions
•Statistical studies can be used to
guide policy decisions.
•Lawmakers, government regulatory
agencies, and other decision makers
must weigh decisions and their
consequences.
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Understanding Our World
•Scan major news source and find
research to help you understand your
world.
•Many studies are exploratory in nature
and results are controversial. That’s
part of why they make interesting
news.

Dr. Welker, Business Statistics 11

Example Lifestyle Statistics
•U.S.Census Bureau collects voluminous data
on many aspects of American life.
•Ongoing “Current Population Survey” polls
a random sample of U.S. households on wide
variety of topics.
•Trends in lifestyle decisions can be tracked.

Dr. Welker, Business Statistics 12

Words to the Wise
1. A representative sample can be used to
make inferences about a larger population,
but descriptive statistics are the only useful
results for an unrepresentative sample.
2. Cause and effect can be inferred from
randomized experiments, but not from
observational studies, where confounding
variables likely to cloud the interpretation.

Dr. Welker, Business Statistics 13

Words to the Wise cont
3. A conservative estimate of sampling
error in a survey is the margin of error
1/n. This is a bound on the difference
between true proportion and sample
proportion that holds for at least 95%
of properly conducted surveys.
4. The margin of error does not include
non-sampling error, such as errors due
to biased wording, nonresponse,
falsifications, and human errors.
Dr. Welker, Business Statistics 14
Words to the Wise cont
5. When individuals measured constitute
whole population, no need for statistical
inference because truth is known.
6. A significance test based on a very large
sample is likely to produce a statistically
significant result even if true value is close
to the null value. Wise to examine the
magnitude of parameter with a confidence
interval to determine if result has practical
importance.
Dr. Welker, Business Statistics 15
Words to the Wise cont
7. A significance test based on a small sample
may not produce a statistically significant
result even if true value differs substantially
from null.
8. When deciding how readily to reject the null
hypothesis (what significance level to use),
important to consider consequences
of type 1 and type 2 errors.
9. Don’t fall prey to the “Cult of the
Statistically Significant”
Dr. Welker, Business Statistics 16
Words to the Wise cont
10.Think carefully about the
hypotheses you are working with
and the subsequent hypotheses
you will propose when you reject
H0.

REPEAT THE DECISION

MAKING PROCESS
Dr. Welker, Business Statistics 17
 Words to the Wise cont
11. Sometimes researchers are surprised to
find “no effect” and study “failed
to replicate” an earlier finding of
statistical significance. Possible
explanations: Sample size too small
and the test had low power. Or, result
in first study based on a type 1 error --
likely if effect was moderate and was
part of larger study that covered
multiple hypotheses.
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 STATS IN A BUSINESS
MODEL
The central issue of business: resources
brought into a collaboration in order to solve
problems for people.
Value proposition, Key resources, Key
activities, key partners, customer
relationships, customer segments, channels,
cost structures, and revenue streams
Deploy STATS in every part of this process.
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 Closing Thoughts…. “excellence is in
the details”
1. Be quantitative
2. Think and read about research
3. Use statistics to make decisions
4. Know how you know something
5. Go into advanced courses with confidence that you have
the necessary background to achieve
6. Some might even consider a career in research: Google
is a “search-research” firm with market cap of $300B

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