Decisions based on average numbers are wrong on average.
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Consider the case of the statistician who drowns while fording a river that he calculates is, on average, three feet deep. If he were alive to tell the tale, he would expound on the “flaw of averages,” which states, simply, that plans based on assumptions about average conditions usually go wrong. This basic but almost always unseen flaw shows up everywhere in business, distorting accounts, undermining forecasts, and dooming apparently well-considered projects to disappointing results.
A version of this article appeared in the November 2002 issue of Harvard Business Review.
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SS Sam L. Savage is the author of The Flaw of Averages (Wiley, 2009) and of an HBR article with the same title, chairman of Vector Economics, Inc (VectorEconomics.com), an adjunct faculty member at Stanford and Cambridge, and a frequent lecturer on risk modeling.
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