In more than 99% of the moments you’ll take a picture, storing the file as a high quality jpg will be good enough to obtain a very beautiful print with natural colors. A jpg file can reproduce 16,7 million colors, which is more than a naked eye can distinguish. You will – as far as color is concerned – not see the difference between a jpg file and a RAW file (with up to 4.398.046 million colors). However, this changes when you decide to edit your pictures. A RAW file will show less quality loss when you adjust levels, curves, white balance, sharpness, chromatic aberration or vignetting (click here). On this page we’ll discuss the advantages of editing a file in 16 bits modus (for raw) over editing in 8 bits modus (for jpg).

It starts with 12 bits or 14 bits

The CMOS sensor of a modern digital camera registers colors either in 12 bits or 14 bits. Many compact cameras still have 10 bit CCD sensors. In case of a 12 bit sensor, the sensor registers 4096 levels of red, 4096 levels of blue and 4096 levels of green. A 14 bit sensor will perceive even 4 times as much color levels. As soon as you save an image as a jpg file, these 4096 levels of red, green and blue have to be squeezed into 256 levels for each color. A jpg file is only able to save 256 levels of red, 256 levels of green, and 256 levels of blue. This means an irreversible loss of tonality.
If you save a file in RAW format, you don’t lose any tonality if you edit this file in Photoshop as a 16 bits/channel . The RAW file can be transformed in a 16 bit psd or tif file. 12 and 14 bit tif or psd files don’t exist. Photoshop offers you the choice between 8 bit, 16 bits or 32 bits / channel only (see image above).

A jpg file can record 16,7 million colors, which is more than the eye can see. The advantage of a file with more tonality in comparison with a 8 bit jpg (i.e. a 16 bits tif file or a 16 bits psd file), might, therefore seem rather academic. Still there are many situations in which a 16 bit file delivers you a much more natural tonality ,especially if you edit pictures extensively, using drastic Levels or Curves adjustments.

Example: posterization a.k.a. Banding. Suppose you have an 8 bits jpg file with many light tones (like the image to the right). The histogram shows that 75 % of all color levels, notably the mid tones and shadow tones, are completely absent in this image. Let’s assume you wish to adjust this image in such a way that it will get darker (perhaps because you accidently overexposed your image and the real subject was much darker). Using Levels in Photoshop you can optimize the contrast for the red, green and blue channels (Levels, Options, Enhance per Channel Contrast).
posterization / Banding is clearly visible as ugly bands after editing the 8 bits jpg file. The histogram is now smeared out over the full tonal range, but because of the limited tonality of the original jpg file, holes appear in the histogram. Such a dented histogram is an important warning for posterization / banding, even if you don’t see the posterization already with your own eyes.
Without posterization / banding: This picture shows a 16 bit file which has had the same treatment as the previously shown 8 bit file: the treated 16 bits file still has so many levels left that the color gradient looks much more natural. There aren’t any dents in the histogram. posterization / banding sometimes appears when pictures are compressed too much, for example by MS-Office when you wish to send pictures by mail.

RAW vs. JPG: More exposure leeway

A RAW file will give you some leeway concerning your exposure settings; much more than a jpg file can offer you. Especially slight over-exposure can be restored during development of RAW files. 
First of all, this can be explained by the larger number of levels – especially in the lighter zones – in a raw file in comparison with a jpg file. 
But a second factor – and this depends on the camera-brand and RAW software- there is still a small amount of information which has been registered by the sensor in the over-exposed region. By reducing the exposure in the RAW converter, you can sometimes revive an overexposed picture. A combination of under-exposing in the RAW converter with the shadows / highlights filter is a powerful combination for restoring over-exposed RAW files.