Homeowner's investment investigations and dangerous statistical comparisons
We look at the alternative strategies of paying off the mortgage in full first, or investing all of one's savings and paying off the mortgage in full 20 years later. We also learn what to call the dangerous power of statistics where it lets us draw conclusions without understanding anything.
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New articles
Pay Off Mortgage Or Invest?
It's a common mistake to compare investment strategies by arithmetic mean. Doing so, it would seem obviously smart to take out a huge mortgage and then invest all that money – i.e. lever one's savings secured by one's home. It might be the right thing to do, but it is not as obvious if we also consider the risk level of investments. The median outcome of either paying off the mortgage or investing it is very similar.
Full article (3–10 minute read): Pay Off Mortgage Or Invest?
Flashcard of the week
In trying to figure out what statistical literacy is, I read The Seven Pillars of Statistical Wisdom. It wasn't great, but it did help me clarify some of my thinking. I don't think I would recommend it unless you're particularly interested.
One of the things it did clarify was through the fourth chapter.
Which is the fourth pillar of statistical wisdom?
This chapter touched how statisticians can draw conclusions from data even in domains they do not understand. This is difficult for some people to accept. I have taught salespeople and project managers about how to do their jobs – not because I know sales or project management, but because the data spoke clearly about what was going wrong in those specific instances.
The fourth pillar is about this power of statistics, which Stigler calls
Intercomparison
This means that statistics allows us to compare data to each other, or to the null hypothesis, without knowing anything about the domain the data is coming from. It's incredibly powerful.
It's also a little dangerous, because without the connection to reality, it is easy to accidentally (or intentionally) mistransform or misinterpret the data in a way that supports an agenda. Any discoveries made through pure intercomparison should be confirmed against reality as best as possible.
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