Charles Wheelans Tips for Separating Economic Truth from Fiction

Newsweek recently published its list of the best 2,000 high schools in America. Looking over the list of schools in my home state of Massachusetts, I was very surprised that my children’s school, Natick High, was ranked significantly higher that my alma mater, Newton North High School. By all standardized scoring measures – SATs, ACTs and AP scores – Newton North beats Natick hands down. So why was Natick ranked higher?

It turns out that 25% of Newsweek’s ranking is based on the percentage of graduates going on to college. Natick’s 96% college-bound rate was much higher than Newton North’s 82% figure. However, it is wrong to conclude that Natick produces more college-bound students. Newton North’s numbers include students in its in-house vocational school, many of whom will go on trade schools, apprenticeships or directly into the workforce. Trade-minded Natick students, on the other hand, go to a separate technical-vocational high school.

Welcome to the world of numerical obfuscation, a topic covered in an informative and surprisingly entertaining way in Naked Statistics: Stripping the Dread from the Data, by Charles Wheelan, a senior lecturer and policy fellow at the Rockefeller Center at Dartmouth College.

In a recent interview with Wheelan, a former correspondent for The Economist and author of several other books , we discussed Naked Statistics and the lessons it offers to financial advisors, whose decision-making processes are influenced by the flood of economic and market data posted every day.

“You can’t be an investment advisor without looking at data, and you can’t look at data without using statistics, because statistics really are nothing more than the tools for interpreting and simplifying huge amounts of information,” Wheelan said. “But the very process of simplifying also introduces some potential error, depending on the measure you use.”

The book offers user-friendly overviews of common statistical and probability concepts advisors encounter on a daily basis as they trudge through performance figures, economic commentaries and analyst reports. A number of chapters offer how-to guides for those who, for example, would like to know how to manually calculate standard deviations and correlation coefficients.