Statistics is a useful tool for understanding the patterns in the world around us. But our intuition often lets us down when it comes to interpreting those patterns. In this series we look at some of the common mistakes we make and how to avoid them when thinking about statistics, probability and risk.
1. Assuming small differences are meaningful
Many of the daily fluctuations in the stock market represent chance rather than anything meaningful. Differences in polls when one party is ahead by a point or two are often just statistical noise.
You can avoid drawing faulty conclusions about the causes of such fluctuations by demanding to see the “margin of error” relating to the numbers.
If the difference is smaller than the margin of error, there is likely no meaningful difference, and the variation is probably just down to random fluctuations.