Monday, August 26, 2013

What is type three error?

When using data to answer a question, your results might not be perfect. Lets think about two scenarios: 
  • Lets say you are trying to figure out if heads and tails are equally likely when you flip a coin. You flip a coin 6 times, and get THTTTH. That's odd... they should be the same. But numbers don't lie right? So you decide that your original hypothesis that they were equally likely is wrong.
  • Having lost all confidence in your understanding of probability, you set out to test something you know is different, your expected winnings vs. expected losses when gambling. So you buy $100 worth of lottery tickets, and surprisingly receive $100 in winnings. You conclude that you are expected to break even in the long run.
In statistics, the first case is called "Type 1 error," deciding that the hypothesis that there is no difference (called the null hypothesis) is false when it is true. The second case is called "Type 2 error," deciding that there is no difference, when there is one. 

Understanding that statistics can be misleading is important when making choices. But even more important is asking the right questions. The focus of this blog is avoiding this "Type 3 error," where you might get the right solution to a problem, but it is not really the problem you wanted to solve. The really unique thing about Type 3 error is that it can be eliminated completely by making sure you know which question you need to answer.

Sunday, August 18, 2013

First Post!

We are not always certain of the facts when we are trying to make decisions. To quote a famous politician: "There are known knowns, known unknowns, and unknown unknowns." In this blog I'll be exploring decision making and trying to explain rational ways to account for both the knowns, and the unknowns. 

This area is both personally interesting to me as I make decisions about food, transportation, health, and many aspects of life. But it is also academically interesting to me as a PhD student in Industrial Engineering. In my professional life, we call this approach "Optimization under uncertainty." But you don't need a fancy name to use the basic concepts in your daily life. I'm hoping that over the course of my posts, I'll be able to convey my general philosophy of making 'good decisions,' and what that means to me.