Thursday, May 23, 2013

Actually Computing the Sample Variance!

I always enjoy the posts from John Cook on his The Endeavour blog. John's a knowledgable guy and there's a lot on his blog that's of interest to econometricians. Take a look for yourself!

Back in 2008, John had a post that's relevant to something I've been blogging about recently. It also reminded me of some important issues associated with computation - issues that we used to worry about a great deal in the bad old days of "hand calculations", and computers with short word-lengths and very limited memory

One thing that needs to be stressed to students is that the algebraic formulae that they learn about are not necessarily expressed in the form that's most appropriate computationally. By "appropriate", I'm referring to both computational accuracy and computational speed. There are actually lots and lots of examples that illustrate the point that I want to make. However, let's just consider the "simple problem" of computing the variance of a sample of data.