So if I were to number the bins (starting from the left) as 1, 2, 3…all the way upto 9

(right most), then the 5thbin (marked by a red arrow) is the ‘average’ bin. Keeping the

average bin as a reference, the data is spread out on either sides of this average

reference value. The way the data is spread out (dispersion as it is called) is

quantified by the standard deviation (recollect this also happens to be the volatility

in the stock market context).

Here is something you need to know – when someone says ‘Standard Deviation (SD)’

by default they are referring to the 1st SD. Likewise there is 2nd standard deviation

(2SD), 3rd standard deviation (SD) etc. So when I say SD, I’m referring to just the

standard deviation value, 2SD would refer to 2 times the SD value, 3 SD would refer

to 3 times the SD value so on and so forth.

For example assume in case of the Galton Board experiment the SD is 1 and

average is 5. Then,

o 1 SD would encompass bins between 4th bin (5 – 1 ) and 6th bin (5 + 1). This is 1 bin to

the left and 1 bin to the right of the average bin

o 2 SD would encompass bins between 3rd bin (5 – 2*1) and 7th bin (5 + 2*1)

o 3 SD would encompass bins between 2nd bin (5 – 3*1) and 8th bin (5 + 3*1)

Now keeping the above in perspective, here is the general theory around the

normal distribution which you should know –

o Within the 1st standard deviation one can observe 68% of the data