Quotes from Charles Wheelan

The broader lesson—and one of the core lessons of personal finance—is that you should always insure yourself against any adverse contingency that you cannot comfortably afford to withstand. You should skip buying insurance on everything else.

On the other hand, smaller samples obviously make for larger standard errors and therefore a larger confidence interval (or "margin of sampling error," to use the polling lingo).

Although the field of statistics is rooted in mathematics, and mathematics is exact, the use of statistics to describe complex phenomena is not exact.

The decision tree lets you know that your expected payoff is far higher than what you are being asked to invest.

I have always had an uncomfortable relationship with math. I don't like numbers for the sake of numbers. I am not impressed by fancy formulas that have no real-world application. I particularly disliked high school calculus for the simple reason that no one ever bothered to tell me why I needed to learn it. What is the area beneath a parabola? Who cares?

The Financial Crisis Inquiry Report describes, "By the time the process was complete, a mortgage on a home in south Florida might become part of dozens of securities owned by hundreds of investors—or parts of bets being made by hundreds more.

On the other hand, the most likely outcome, meaning the one that will happen most often, is that the company will not discover a cure for baldness and you will get only $250,000 back.

For as long as there have been creditors and debtors—which is a darn long time—creditors have tried to protect the value of the currency and debtors have sought to devalue it.

The law of large numbers suggests that an investment firm, or a rich individual like Warren Buffet, should seek out hundreds of opportunities like this with uncertain outcomes but attractive expected returns. Some will work; many won't. On average, these investors will make a lot of money, just like an insurance company or a casino.

At first glance, the most suspicious thing about polling is that the opinions of so few can tell us about the opinions of so many.

L. Mencken once noted that a wealthy man is a man who earns $100 a year more than his wife's sister's husband. Some economists have belatedly begun to believe that he was on to something.

As the Economist points out, "If you consider people, not countries, global inequality is falling rapidly.

If you consider people, not countries, global inequality is falling rapidly.

Politician B (more of an elitist): "Our economy is showing appreciable gains: Seventy percent of Americans had rising incomes last year.

Given the disparity in the size of the states, it's entirely possible that the majority of states are doing worse while the majority of Americans are doing better. The key lesson is to pay attention to the unit of analysis.

The same data can (and should) be interpreted entirely differently if one changes the unit of analysis. We don't care about poor countries; we care about poor people.

The central limit theorem tells us that a large sample will not typically deviate sharply from its underlying population

Intelligence Gathering and Crime Analysis

The irony is that more data can often present less clarity.

In this example, the defining characteristic of the median—that it does not weight observations on the basis of how far they lie from the midpoint, only on whether they lie above or below—turns out to be its weakness.

The central limit theorem tells us that the sample means will be distributed roughly as a normal distribution around the population mean.

characteristic of the median—that it does not weight observations on the basis of how far they lie from the midpoint

All of this will be true no matter what the distribution of the underlying population looks like.

First of all, our best guess for what the mean of any sample will be is the mean of the population from which it's drawn.