RAINING ON THE PARADE
If you ever happen to make a presentation involving data analysis,
here is a situation that you might encounter. After all the preparation
involving umpteen coffees, and bleary-eyed but vigorous mouse click-
ing at statistical packages as you present your forecasting model, there
is a wise guy in the audience who quips, “I am sure I can fit any model
to the degree of accuracy I want by adding a lot of variables. I do not
see how your model is any good.” While you would like to stare him
down until he sulks and quietly leaves the room, more often than not
the wise guy happens to be the boss. Unfortunately for you, more often
than not he is also correct.
The key, however, is to be one up on the wise guy! Based on the
preceding discussion you can now wax eloquently about the tug of war
between goodness of fit and the evil of bias and how you have metic-
ulously taken into account the effect of adding multiple variables in the
forecasting model. Dazzle everyone with your slides on AIC calcula-
tions and top it off with an out-of-sample test.
If your presentation is close to end of fiscal year, you can chuckle
to yourself about the bump in bonus you are likely to see due to this.28 BACKGROUND MATERIAL