Analytics Stories

CHAPTER 1Preliminaries

Most applications of analytics involve looking at data relevant to the problem at hand and analyzing uncertainty inherent in the given situation. Although we are not emphasizing advanced analytics in this book, you will need an elementary grounding in probability and statistics. This chapter introduces basic ideas in statistics and probability.

Basic Concepts in Data Analysis

If you want to understand how analytics is relevant to a particular situation, you absolutely need to understand what data is needed to solve the problem at hand. Here are some examples of data that will be discussed in this book:

• If you want to understand why Bernie Madoff should have been spotted as a fraud long before he was exposed, you need to understand the “reported” monthly returns on Madoff's investments.
• If you want to understand how good an NBA player is, you can't just look at box score statistics; you need to understand how his team's margin moves when he is in and out of the game.
• If you want to understand gerrymandering, you need to look at the number of Republican and Democratic votes in each of a state's congressional districts.
• If you want to understand how income inequality varies between countries, you need to understand the distribution of income in countries. For example, what fraction of income is earned by the top 1%? What fraction is earned by the bottom 20%?

In this chapter we will focus on four questions you should ask about any data set:

• What is a ...