Statistics
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What is practical significance?

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2007-05-17 07:00:13

There is statistical significance, an arbitrary limit whereby an

observed difference could reasonably be assumed to be due to some

factor other than pure chance. Then there is practical

significance, an arbitrary limit whereby an observed difference is

of some practical use in the real world. Let's say you add

Ingredient X to your car's oil that is supposed to improve fuel

efficiency. You conduct a careful controlled experiment, measuring

fuel efficiency before and after introducing the additive. You find

that the difference before and after is statistically significantly

better, and conclude that the additive does indeed improve fuel

efficiency. However, Ingredient X costs $1000 a bottle -

effectively negating any fuel efficiency savings. You don't really

drive your car that much so conclude that the difference is not

practically significant.


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