Traffic lights are almost great

I use red/green signals in dashboards all the time. Everyone knows the red/amber/green code, so they instantly convey a rough and ready view of business performance. If there is a lot of red, there is a problem; everything green, no problem.
They come with one major catch, though, which usually gets forgotten. Read the rest of this entry »

Correlation and its discontents

Another powerful addition to the business statistics toolbox today: correlation coefficients. These should be used in the context of two golden rules:

1. Draw a graph 

2. Keep using your brain (I know it shouldn’t need saying, but honestly, people don’t always manage this one).

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A magical fraud finder

I hope you’ll indulge me moving a little away from normal dashboards topics today, to a neat rule called Benford’s Law. This is handy if you’re trying to see if someone’s data cleaning exercise has made the data a little *ahem* too clean. (See the argument for the good kind of data cleaning here).

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There’s this really interesting phenomenon called ‘anchoring’, where by introducing an irrelevant piece of information to a conversation you can influence people’s judgements of numbers, even where the person knows that the initial ‘anchor’ information is totally irrelevant. For example:

… an audience is first asked to write the last two digits of their social security number and consider whether they would pay this number of dollars for items whose value they did not know, such as wine, chocolate and computer equipment. They were then asked to bid for these items, with the result that the audience members with higher two-digit numbers would submit bids that were between 60 percent and 120 percent higher than those with the lower social security numbers, which had become their anchor. (source Wikipedia)

The same kind of effect occurs with the scales on graphs. No matter how smart and numerate the audience is, they will be influenced by the scale you use to present a picture, even though you know and they know that the data is the same stuff whatever scale it’s shown on.

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