Monday, August 22, 2011

Confidence Intervals

In his Bad Science column in the Guardian Newspaper last Saturday Ben Goldacre wrote
"Those figures are called 95% confidence intervals, and these are one of the most useful inventions of modern life."

The column both explains what a confidence interval is and why it is so important. One must be very careful to check that increases (or decreases) over time in a statistic based on a sample are actually significant. In this case the statistic relates to unemployment and the changes observed are not big enough to conclude that the underlying population value has changed.

NOTE: The article is also available via the Bad Science web page. By the way I just love his phrase "...the gentle static fuzz of random variation"

Wednesday, August 17, 2011

Why you shouldn't judge econometric results just in terms of P-values and R squared

Both The Undercover Economist (Tim Harford) and Freakonmics (Stephen J Dubner) have drawn attention to a Working Paper by Tatu Westling of the University of Helsinki which has the eye-catching title Male Organ and Economic Growth: Does Size Matter?.

I think this paper should help us to remember that P values and the size of R squared are not the only things to focus on when evaluating the results of an applied econometrics study.