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The Cult of Statistical Significance – What Economists Should and Should Not Do to Make their Data Talk

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  • Walter Krämer

Abstract

This article takes issue with a rather devastating critique of statistical significance testing propagated in a recent book by Ziliak/McCloskey (2008) of the same title. Ziliak/McCloskey argue that statistical significance testing is a barrier rather than a booster for empirical research in economics and should therefore be abandoned altogether. The present article argues that this is good advice in some research areas but not in others, with the aim of making practitioners aware of various fallacies connected with the concept of statistical significance, and at the same time showing where significance testing is most fruitfully employed. Taking all issues which have appeared so far of the German Economic Review and a recent epidemiological meta-analysis as examples, the present paper shows that there has indeed been a lot of misleading work where confirmatory significance testing has played a major role, and that at the same time many promising avenues, best summarized under the heading “specification tests”, have not been used.

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  • Walter Krämer, 2011. "The Cult of Statistical Significance – What Economists Should and Should Not Do to Make their Data Talk," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 131(3), pages 455-468.
    • Handle: RePEc:aeq:aeqsjb:v131_y2011_i3_q3_p455-468
    DOI: 10.3790/schm.131.3.455
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    1. Ronald Bachmann & Michael C. Burda, 2010. "Sectoral Transformation, Turbulence and Labor Market Dynamics in Germany," German Economic Review, Verein für Socialpolitik, vol. 11(1), pages 37-59, February.
    2. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11(2), pages 109-149, May.
    3. Ronald Bachmann & Michael C. Burda, 2010. "Sectoral Transformation, Turbulence and Labor Market Dynamics in Germany," German Economic Review, Verein für Socialpolitik, vol. 11(1), pages 37-59, February.
    4. Wagner Joachim, 2010. "Entry, Exit and Productivity: Empirical Results for German Manufacturing Industries," German Economic Review, De Gruyter, vol. 11(1), pages 78-85, February.
    5. Feld Lars P. & Reulier Emmanuelle, 2009. "Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons," German Economic Review, De Gruyter, vol. 10(1), pages 91-114, February.
    6. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11(2), pages 109-149, May.
    7. Lars P. Feld & Emmanuelle Reulier, 2009. "Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons," German Economic Review, Verein für Socialpolitik, vol. 10(1), pages 91-114, February.
    8. Inmaculada Martínez‐Zarzoso & Felicitas Nowak‐Lehmann D. & Stephan Klasen & Mario Larch, 2009. "Does German Development Aid Promote German Exports?," German Economic Review, Verein für Socialpolitik, vol. 10(3), pages 317-338, August.
    9. Krämer Walter & Arminger Gerhard, 2011. "“True Believers” or Numerical Terrorism at the Nuclear Power Plant," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 231(5-6), pages 608-620, October.
    10. McCloskey, Donald N, 1985. "The Loss Function Has Been Mislaid: The Rhetoric of Significance Tests," American Economic Review, American Economic Association, vol. 75(2), pages 201-205, May.
    11. Lovell, Michael C, 1983. "Data Mining," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 1-12, February.
    12. Bettina Becker & Silke Uebelmesser, 2010. "Health Insurance Competition in Germany - the Role of Advertising," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 130(2), pages 169-194.
    13. Joachim Wagner, 2010. "Entry, Exit and Productivity: Empirical Results for German Manufacturing Industries," German Economic Review, Verein für Socialpolitik, vol. 11(1), pages 78-85, February.
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    1. About the cult of statistical significance
      by Economic Logician in Economic Logic on 2012-03-07 20:40:00

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    Cited by:

    1. Frings Hanna, 2013. "The Employment Effect of Industry- Specific, Collectively Bargained Minimum Wages," German Economic Review, De Gruyter, vol. 14(3), pages 258-281, August.
    2. Adam Pilny, 2014. "Mergers and Acquisitions in the German Hospital Market – Who are the Targets?," Ruhr Economic Papers 0518, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    3. Stephen T. Ziliak & Deirdre N. McCloskey, 2013. "We Agree That Statistical Significance Proves Essentially Nothing: A Rejoinder to Thomas Mayer," Econ Journal Watch, Econ Journal Watch, vol. 10(1), pages 97-107, January.
    4. Jens Rommel & Meike Weltin, 2021. "Is There a Cult of Statistical Significance in Agricultural Economics?," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(3), pages 1176-1191, September.
    5. Bücker, Michael & van Kampen, Maarten & Krämer, Walter, 2013. "Reject inference in consumer credit scoring with nonignorable missing data," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1040-1045.
    6. Hirschauer Norbert & Grüner Sven & Mußhoff Oliver & Becker Claudia, 2019. "Twenty Steps Towards an Adequate Inferential Interpretation of p-Values in Econometrics," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(4), pages 703-721, August.
    7. Hirschauer, Norbert & Grüner, Sven & Mußhoff, Oliver & Becker, Claudia & Jantsch, Antje, 2020. "Can p-values be meaningfully interpreted without random sampling?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14, pages 71-91.
    8. Pilny, Adam, 2014. "Mergers and Acquisitions in the German Hospital Market – Who are the Targets?," Ruhr Economic Papers 518, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    9. Hübler, Olaf, 2013. "Methods in empirical economics - a selective review with applications," Hannover Economic Papers (HEP) dp-513, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    10. repec:zbw:rwirep:0518 is not listed on IDEAS
    11. Alice Neuhäuser & Maike Mischler & Graeme Ruxton & Markus Neuhäuser, 2013. "Gründe für von der Fraktionsdisziplin abweichendes Abstimmungsverhalten bei Bundestagsabgeordneten," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 7(1), pages 91-99, August.
    12. Walter Krämer, 2018. "Interview mit Günter Bamberg," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 12(3), pages 299-307, December.
    13. Hirschauer Norbert & Grüner Sven & Mußhoff Oliver & Frey Ulrich & Theesfeld Insa & Wagner Peter, 2016. "Die Interpretation des p-Wertes – Grundsätzliche Missverständnisse," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(5), pages 557-575, October.
    14. Thomas Mayer, 2012. "Ziliak and McCloskey's Criticisms of Significance Tests: An Assessment," Econ Journal Watch, Econ Journal Watch, vol. 9(3), pages 256-297, September.
    15. Bernhard Rauch & Max G�ttsche & Stephan Langenegger, 2014. "Detecting Problems in Military Expenditure Data Using Digital Analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(2), pages 97-111, April.
    16. Wobker, Inga & Lehmann-Waffenschmidt, Marco & Kenning, Peter & Gigerenzer, Gerd, 2012. "What do people know about the economy? A test of minimal economic knowledge in Germany," Dresden Discussion Paper Series in Economics 03/12, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    17. Hübler, Olaf, 2014. "Estimation of standard errors and treatment effects in empirical economics : methods and applications," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 47(1-2), pages 43-62.
    18. W. Krämer, 2018. "Interview mit Volker Mammitzsch," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 12(2), pages 179-188, September.
    19. Thomas Mayer, 2013. "Reply to Deirdre McCloskey and Stephen Ziliak on Statistical Significance," Econ Journal Watch, Econ Journal Watch, vol. 10(1), pages 87-96, January.

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    More about this item

    JEL classification:

    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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