What Practitioners Need to Know…About Lognormality

Why should we care about logarithms? In the days prior to pocket calculators (long before my time), logarithms were useful for performing complicated computations. Financial analysts would multiply large numbers by summing their logarithms, and they would divide them by subtracting their logarithms. For example, given a base of 4, we can multiply 16 times 8 by raising the number 4 to the 3.5 power, which is the sum of the logarithms 2 and 1.5. Of course, you might argue that it would have been easier to multiply large numbers directly than to raise a base to a fractional power. In the olden days, however, an analyst would use a slide rule, which is a ruler with a sliding central strip marked with logarithmic scales.