Navigating through The Signal and The Noise

In my digital media graduate program at USC, I took courses in online research and participated in a couple of doctorate-level online research projects. The knowledge I gained about statistics, online research tools, network theory and other very fundamental yet practical data analysis skills have been extremely helpful in directing the decision-making process and driving the success of product development and media campaigns at my work. I have recently started reading the statistician Nate Silver’s book The Signal and the Noise, and have tried to deepen my understanding of business forecasting through his take on using statistics-based forecasting of real world events.

In The Signal and the Noise, Silver dives deep into how data is used to forecast in multiple arenas like finance, politics, baseball, weather, earthquakes, computer-automated chess programs, and poker. Some insights in the book are from his own experience: besides his more “normal” job working for a Big Four accounting firm, he developed a professional baseball forecast system, PECOTA, tried to make a living by applying his probability skills at online poker, and founded the famed New York Times-hosted politics and stats blog, FiveThirtyEight.com. Some of the stories in his book are from his in-depth research of other industries that rely heavily on forecasting systems, like the weather forecasting industry. By scrutinizing the process and biases in these forecasting industries, he pointed out the noise and biases mixed in the data forecasting models,and gradually establishes more reliable processes to his readers.

This book is very dense, and definitely not as fast a read as most of my light-hearted summer readings are. Statistics can sometimes be dry, but the way Silver weaves storytelling into his statistical insights made the book a pleasant page-turner for me.

The two chapters I finished this week were about chess battles between the world’s best chess player and IBM’s Deep Blue computer, and the online poker bubble.

In the first story, the author tries to convey the fortes and weaknesses of a computer-forecasting system, and likewise with human forecasting abilities. Silver came to the conclusion that technology and computers are best at logical and tactical calculations involving immense calculation power, but they are only as good as the data logic and inputs directing them. On the other hand, human brains, with our imaginative thinking capabilities, are stronger at establishing a holistic picture and making strategic moves, though we can also fall prey to our biases and emotions. Humans should harness computers and technology when possible, but we also need to avoid blindly worshiping technology and the data it outputs.

In the poker bubble story, Silver relates to his personal experience in the pro online poker world. He revisits the ups and downs of the online poker industry, and reveals his skills on how to make probabilistic judgement on cards, on opponents’ hands, and interestingly, he shows how poker is a field where luck plays almost as a large role as skills. Poker is a world where the signal and the noise are inevitably mixed, just like in many fields of our own lives. It is hard to look at a result in the short term and identify whether it is signal or noise. We need to stay cautious in a very results-driven environment, and a wise forecaster should always examine the process to test its reliability, rather than solely relying on volatile results.

I’ve picked up on some great insights so far, and I look forward to the rest of the book.

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