Saturday, December 17, 2005

Time flies when you are having fun

For those interested in understanding how the important variables that impact our lives change over time and what that means, Barry Ritholtz' The Big Picture blog consistently provides a sharp, careful and on target advice about what economic data is important and how to look at it carefully and fully.

Here are some recent examples from earlier this week.

NOTE: The permalinks are broken on the site right now, so just scan down from the blog home page to find these. excellent pieces of work.

The ideas apply to the case in hand and easily extend to thinking about any time series data you may be interested in.

YTD versus other time periods - posted on Dec 12th. A brief essay on detecting cherry picking and applying appopriate antidotes to avoid being misled by cheerleaders. We can all take to heart his comment regarding how the SEC stepped in to rein in the way mutual fund companies were cherry picking what they told prospective customers.

"Performance measures are often a quirk of time periods. The abuse of these stats is why the SEC standardized the way Mutual Funds report them in their marketing materials -- they no longer get to cherry pick the best data, and instead have to report several different time periods (e.g., 1,3 5 years) . . . "

How Strong is this Jobs Recovery? - posted on Dec 12th. This post shows 4 different ways how one might look at the recent job creation claims (4.4 million new jobs created since May 2003) from the White House and dramatically sheds some light on this important subject.

"Let's start with my question: How legitimate is that 4.4M number?

"The answer is, it depends upon how you look at it: Its either 1) Very Legitimate; 2) Legit, but Misleading; 3)About a Third Fabricated Projected; 4) Not nearly as legitimate as it appears."

Read the whole article. The answers are quite revealing and Barry once again uses the SEC anti-cherry picking principle to help think about the data we are seeing.

The general antidote endorsed by this blog is to make sure you have the whole time series of behavior of the factors in question and that you actually visually examine them prior to discussing what you think they mean with other interested parties. Check out the Time Line Collaboration principles on the right hand side of this blog for more ideas related to assessing statistical claims such as the one for 4.4 million jobs created.

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