Statistics for Decision Makers - 01.01 - Introduction

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title
01.01 - Introduction
author
Bernard Szlachta (NobleProg Ltd) bs@nobleprog.co.uk

Inference and Decision。

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  • Inference is about finding facts
  • Decisions are about taking courses of action, which can be based on inference findings
Is inference not followed by a decision idle?

Decisions and Rules。

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  • A Decision is a choice between alternatives
  • Rules are the conditions which guide or determine decisions

BPMN, Decisions and Statistics。

Decisions, Rules and Inference.png

Statistics, Decisions and Rules。

  • The Decision Maker encounters a decision point in a business process
  • Making those decisions is mostly a question of judgement
  • Finding evidence using the scientific method
  • The ultimate goal is to fully automate decision making by creating rules which use statistical methods

Hiring Example。

Business Process
Recruitment
Decision
Invite a candidate for interview or not?
Variables
Candidate has relevant experience
Salary expectation
Availability
Inference
What is the probability that the candidate will be hired and make a good employee?
Rules
 Rule "Should the candidate be interviewed?"
 When 
     P-value < 0.01 
 Then 
     Interview Candidate
 End

Traditional Rules Example。

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 Rule "Should the candidate be interviewed?"
 When 
     ExpectedSalary < 100000 and
     AvailableDate < 2015-01-01
     ExperienceScore >= 1000
 Then 
     Interview Candidate
 End

When to use Statistical Inference to make decisions。

  • Deterministic solutions are usually cheaper and easier to understand and maintain

Use Statistical Models if:

  • the loss related to errors caused by deterministic solutions justifies the cost of maintaining a statistical module
  • there are no easy deterministic solutions
  • the model needs to learn (e.g. neural networks)
  • the rules are in the heads of managers who change often and need to relearn the rules each time from experience

Technical Statistics。

  • Database Indexes (e.g. Oracle)
  • Search Engine
  • Network Routers
  • .....

Overview of the methods。

Describe Sample Measure Predict
  • mean
  • standard deviation
  • distribution
  • simple random sampling
  • stratified random sample
  • determining sample size (from power)
  • validity
  • reliability
  • hypothesis testing
  • regression/forecasting

Questions to the audience。…

Quiz。

Please find the Quiz here

Quiz

1 A sentence "If the P-value is greater than 0.5 we consider the test inconclusive" is an example of

A decision
A rule

2 A company is surveying people about their propensity to recommend a product to a friend. It turned out that only a couple of people replied to the survey, but the difference in propensity increased 70%. What can the managers do?

They must find more respondents and repeat the survey, otherwise the test is insignificant
They can simply assume that the propensity increased 70%
They should calculate what the chances are you would get such an increase by pure chance if there were no difference in reality (i.e. use a statistical method)