Introduction

As of the writing of this book, the fields of statistics and data science are evolving rapidly to meet the changing needs of business, government, and research organizations. It is an oversimplification, but still useful, to think of two distinct communities as you proceed through the book:

1. The traditional academic and medical research communities that typically conduct extended research projects adhering to rigorous regulatory or publication standards, and
2. Business and large organizations that use statistical methods to extract value from their data, often on the fly. Reliability and value are more important than academic rigor to this data science community.

If You Can't Measure it, You Can't Manage It

You may be familiar with this phrase or its cousin: if you can't measure it, you can't fix it. The two come up frequently in the context of Total Quality Management or Continuous Improvement programs in organizations. The flip side of these expressions is the fact that if you do measure something and make the measurements available to decision-makers, the something that you measure is likely to change.

Toyota found that placing a real-time gas-mileage gauge on the dashboard got people thinking about their driving habits and how they relate to gas consumption. As a result, their gas mileage-miles they drove per gallon of gas-improved.

In 2003, the Food and Drug Administration began requiring that food manufacturers include trans fat quantities on their food labels. In 2008, it was found from a study that blood levels of trans fats in the population had dropped 58% since 2000 (reported in the Washington Post, February 9, 2012, A3).

Thus, the very act of measurement is, in itself, a change agent. Moreover, measurements of all sorts abound-so much so that the term Big Data came into vogue in 2011 to describe the huge quantities of data that organizations are now generating.

Big Data: If You Can Quantify and Harness It, You Can Use It

In 2010, a statistician from Target described how the company used customer transaction data to make educated guesses about whether customers were pregnant or not. On the strength of these guesses, Target sent out advertising flyers to likely prospects, centered around the needs of pregnant women.

How did Target use data to make those guesses? The key was data used to "train" a statistical model: data in which the outcome of interest-pregnant/not pregnant-was known in advance. Where did Target get such data? The "not pregnant" data was easy-the vast majority of customers were not pregnant so the data on their purchases was easy to come by. The "pregnant" data came from a baby shower registry. Both datasets were quite large, containing lists of items purchased by thousands of customers.

Some clues are obvious-purchase of a crib and baby clothes is a dead giveaway. But, from Target's perspective, by the time a customer purchases these obvious big ticket items, it was too late-they had already chosen their shopping venue. Target wanted to reach customers earlier, before they decided where to do their shopping for the big day. For that, Target used statistical modeling to make use of nonobvious patterns in the data that distinguish pregnant from nonpregnant customers. One such clue was shifts in the pattern of supplement purchases-for example, a customer who was not buying supplements 60 days ago but is buying them now. Crafting a marketing campaign on the basis of educated guesses about whether a customer is pregnant aroused controversy for Target, needless to say.

Much of the book that follows deals with important issues that can determine whether data yields meaningful information or not:

• The role that random chance plays in creating apparently interesting results or patterns in data.
• How to design experiments and surveys to get useful and reliable information.
• How to formulate simple statistical models to describe relationships between one variable and another.

Phantom Protection from Vitamin E

In 1993, researchers examining a database on nurses' health found that nurses who took vitamin E supplements had 30-40% fewer heart attacks than those who did not. These data fit with theories that antioxidants such as vitamins E and C could slow damaging processes within the body. Linus Pauling, winner of the Nobel Prize in Chemistry in 1954, was a major proponent of these theories. The Linus Pauling Institute at Oregon State University is still actively promoting the role of vitamin E and other nutritional supplements in inhibiting disease. These results provided a major boost to the dietary supplements industry. The only problem? The heart health benefits of vitamin E turned out to be illusory. A study completed in 2007 divided 14,641 male physicians randomly into four groups:

1. Take 400 IU of vitamin E every other day
2. Take 500 mg of vitamin C every day
3. Take both vitamin E and C
4. Take placebo.

Those who took vitamin E fared no better than those who did not take vitamin E. As the only difference between the two groups was whether or not they took vitamin E, if there were a vitamin E effect, it would have shown up. Several meta-analyses, which are consolidated reviews of the results of multiple published studies, have reached the same conclusion. One found that vitamin E at the above dosage might even increase mortality.

What made the researchers in 1993 think that they had found a link between vitamin E and disease inhibition? After reviewing a vast quantity of data, researchers thought that they saw an interesting association. In retrospect, with the benefit of a well-designed experiment, it appears that this association was merely a chance coincidence. Unfortunately, coincidences happen all the time in life. In fact, they happen to a greater extent than we think possible.

Statistician, Heal Thyself

In 1993, Mathsoft Corp., the developer of Mathcad mathematical software, acquired StatSci, the developer of S-PLUS statistical software, predecessor to the open-source R software. Mathcad was an affordable tool popular with engineers-prices were in the hundreds of dollars, and the number of users was in the hundreds of thousands. S-PLUS was a high-end graphical and statistical tool used primarily by statisticians-prices were in the thousands of dollars, and the number of users was in the thousands.

In an attempt to boost revenues, Mathsoft turned to an established marketing principle-cross-selling. In other words, trying to convince the people who bought product A to buy product B. With the acquisition of a highly regarded niche product, S-PLUS, and an existing large customer base for Mathcad, Mathsoft decided that the logical thing to do would be to ramp up S-PLUS sales via direct mail to its installed Mathcad user base. It also decided to purchase lists of similar prospective customers for both Mathcad and S-PLUS.

This major mailing program boosted revenues, but it boosted expenses even more. The company lost over $13 million in 1993 and 1994 combined-significant numbers for a company that had only $11 million in revenue in 1992.

What Happened?

In retrospect, it was clear that the mailings were not well targeted. The costs of the unopened mail exceeded the revenue from the few recipients who did respond. In particular, Mathcad users turned out to be unlikely users of S-PLUS. The huge losses could have been avoided through the use of two common statistical techniques:

1. Doing a test mailing to the various lists being considered to (a) determine whether the list is productive and (b) test different headlines, copy, pricing, and so on, to see what works best.
2. Using predictive modeling techniques to identify which names on a list are most likely to turn into customers.

Identifying Terrorists in Airports

Since the September 11, 2001 Al Qaeda attacks in the United States and subsequent attacks elsewhere, security screening programs at airports have become a major undertaking, costing billions of dollars per year in the United States alone. Most of these resources are consumed by an exhaustive screening process. All passengers and their tickets are reviewed, their baggage is screened, and individuals pass through detectors of varying sophistication. An individual and his or her bag can only receive a limited amount of attention in an exhaustive screening process. The process is largely the same for each individual. Potential terrorists can see the process and its workings in detail and identify its weaknesses.

To improve the effectiveness of the system, security officials have studied ways of focusing more concentrated attention on a small number of travelers. In the years after the attacks, one technique enhanced the screening for a limited number of randomly selected travelers. Although it adds some uncertainty to the process, which acts as a deterrent to attackers, random selection does nothing to focus attention on high-risk individuals.

Determining who is of high risk is, of course, the problem. How do you know who the high-risk passengers are?

One method is passenger profiling-specifying some guidelines about what passenger characteristics merit special attention. These characteristics were determined by a reasoned, logical approach. For example, purchasing a...