Data Dredging

Article byKhalid Ahmed
Edited byAlfina
Reviewed byDheeraj Vaidya, CFA, FRM

Data Dredging Meaning

Data dredging (or data fishing, snooping, or p-hacking) refers to purposely exploring different data subsets or doing multiple statistical tests until a significant finding or required outcome gets obtained without relevant correction for many comparisons. Its purpose is to demonstrate certain connections among variables as significant.

Data Dredging

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It gets used in misinterpreting research results and manipulating research findings leading to wrong clans or falsified outcomes. Data dredging thus has serious implications like forged results, distorted scientific knowledge, and resource wastage during pursuing fraudulent leads. It mostly depends on chance results that may confirm the existing data set without acknowledging the effect of chance correlations.

Key Takeaways

  • Data dredging involves the practice of analyzing various subsets of data or conducting multiple statistical tests until a significant finding or desired outcome is obtained without appropriately accounting for the numerous comparisons made.
  • Researchers have found data dredging helpful in discovering unforeseen relationships between variables that might have otherwise remained concealed.
  • Dredging reveals hidden relationships in data sets, leading to new research and applications, but has disadvantages such as distorted outcomes, chance factors, overfitting models, causality as correlation, non-generalized results, and publication bias.
  • To avoid dredging- one can formulate a research hypothesis, deploy statistical techniques, validate findings, report methods, and focus on importance.

Data Dredging Explained

Data dredging can be stated as trying to extract more information out of a given dataset than the information it actually has without having a proper hypothesis. Also called p-hacking, it does bring some benefits to the tester but also has many negatives. The benefits involve exposing hidden relationships within variables of a data set that may have remained hidden if not for the dredging. As a result, one may take up new research, and newer hypotheses may get formed by the researcher leading to new outcomes and applications.

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It has some remarkable negatives or disadvantages, which are as follows:

  1. Distorted outcomes: It increases the chances of getting distorted outcomes or false positives due to extended tests and numerous variables exploration.
  2. Chance factor: Any important result may be out of chance factor and not due to an established theoretical base.
  3. Overfitting models: It tends to use overfitting models, which are quite complex and customized to suit particular data sets utilized for evaluation. Hence, the model performs poorly when used for a new data set, leading to wrong outcomes.
  4. Causation as correlation: Causation may be wrongly interpreted as correlation amongst variables without proving the cause.
  5. Non-generalized results: It fails to give general results as it lacks a theoretical basis. Moreover, the results so obtained from dredging has no real-world applicability.
  6. Publication bias: Here, the researcher neglects the insignificant findings in favor of significant findings resulting in a biased literature cornerstone tilted towards false-positive results.

In the finance world, it has certain applications:

  • Strategies of investment: It helps in discovering patterns within historical financial data for appropriate investment strategies.
  • Risk evaluation: It aids in discovering hidden significant risk factors related to the market or financial crisis.
  • Credit score: It also leads to the creation of credit rating models for assessing the creditworthiness of borrowers.
  • Market research: It benefits firms by helping them analyze consumer behavior, sales data, and economic signals to ascertain market patterns or trends.

Examples

In order to understand the topic better, let’s use a few examples.

Example # 1

Suppose a company engages in data dredging to examine the influence of various advertising channels on sales. Hence, they discover a statistically significant correlation between social media ads and sales. However, it is important to note that this outcome may be attributed to the practice of data dredging since they explored various channels without a predetermined hypothesis.

Example # 2

P-hacking or data dredging techniques are used by investor A to find patterns in stock market data. They investigate several factors, including changes in price, trading activity, the tone of the news, economics, and technical indicators. They discover a specific technical indicator using this technique that has statistical relevance in predicting changes in stock price.

However, it is crucial to recognize that this discovery can be unreliable in the absence of a predetermined hypothesis or suitable corrective techniques.

How To Avoid?

One has to follow certain guidelines and precautions to avoid risk mitigation arising from data mitigation. One must formulate a research hypothesis in advance prior to conducting of evaluation to prevent fishing of important results.

Also, one can correct false discovery incidence by deploying standard and appropriate statistical techniques. Validation of findings upon independent datasets plus replicating the analysis using new data sets also prevents the dredging of data.

In addition, one must report all the analysis methods, like examined variables, the hypothesis tested, and any other changes made to bring transparency and remove data dredging bias.

Moreover, besides focusing only on the significance of statistics, the practical importance of the research findings in evaluating the importance and effective size also helps avoid dredging.

Data Dredging vs Data Mining

To extract breakthroughs and useful insights from enormous datasets, statistical analysis is essential. Data dredging along with data mining have been two methods that are frequently applied in data analysis. Although both strategies analyze data, there are clear distinctions between them in terms of technique and goal. Hence, let us use the table between to know the difference between the two:

Data DredgingData Mining
It helps in finding statistically important trends. It helps in exposing hidden trends, insights or relationships.
Dredging has no predetermined hypothesis.It has its base in a specific hypothesis or research objective.
Only existing data gets used in the absence of extra dataIt involves gathering fresh data or mixing different sources.
It has no correction option for multiple comparisons and tests. One can use relevant correction methods for comparisons and statistical techniques.
Statistical significance or p-values get more focus here.Practical relevance plus statistical significance are its focus.
The findings may not be generalizable or replicable. It gives replicable and generalizable results.
It has a high rate of false positives and distorted findings.Data mining reduces bias by critical selection of data.
It needs caution related to the interpretation of findings.It considers both casualty and correlation while results interpretation.

Frequently Asked Questions (FAQs)

1. How do data scientists avoid data dredging?

Data dredging in statistics comprises doing several tests or investigating various data subsets until a desired or statistically significant result is obtained. Data scientists can prevent plagiarism and prevent data dredging by developing hypotheses beforehand, using appropriate statistical techniques to address multiple testing, conducting validation and replication studies, and giving practical significance and effect size priority over statistical significance.

2. What is the function of data dredging?

Data dredging is the process of analyzing large datasets or running a variety of statistical tests to find probable links or trends. Its goal is to locate statistically significant results, sometimes using exploratory methods without clear study objectives or assumptions.

3. Why is data dredging bad?

Data dredging is harmful because it has a higher chance of generating false positive results, which can result in incorrect interpretations or misleading conclusions. The possible effects are overfitting, interpreting correlations as causation, inaccurate reporting of important outcomes, and impaired capacity to replicate and generalize findings.

This article has been a guide to Data Dredging and its meaning. Here, we explain the topic with its examples, how to avoid it, and comparison with data mining. You may also find some useful articles here –

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