INTRODUCTION

The Application of Statistics to the Measurement of Damages for Lost Profits

To get the most out of the case studies in this book, the reader needs to attain a minimum amount of statistical knowledge.

The Three Big Statistical Ideas

There are Three Big Statistical Ideas: variation, correlation, and rejection region (or area). If we can build sufficient intuition about these interrelated concepts, then we can construct a raft for ourselves upon which we can explore the bayou of statistical analysis for lost profits. Therefore, what follows is a very broad introduction to statistics, which does not allow us to explain or define every technical term that appears. To assist you, we have included all those technical terms in a Glossary at the end of the book where they are defined or explained.

Variation

The first Big Idea is that of variation, which means to vary about the average or mean. It deals with the degree of deviation or dispersion of a group of numbers in relation to the average of that group of numbers. For example, the average of 52 and 48 is 50; but so is the average of 60 and 40, 75 and 25, and 90 and 10. While each of the sample data sets has the same average, they all have different degrees of dispersion or variances. Which average of 50 would you have more confidence in—that of 52 and 48, or that of 90 and 10—to predict the population mean?

Variance can also be depicted visually by imagining two archery targets, with one target having a set of five arrows ...

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