Wednesday, March 23, 2011

"Those Pesky Averages"

One and one are two.  Always have been, always will be.  We trust numbers and we make decisions, make choices, and cast votes based on them because numbers don’t lie.  We hear numbers from those trying to make points, to promote ideas and policies and to convince us.  But do we really understand them? 

While numbers don’t lie, they can be misunderstood, misinterpreted and even misused.  Arguably the most abused function is the "average".  While very useful to show overall trends, averages can be very misleading when it comes to the actual pieces that make up the data.

For example, let’s say that you're giving a talk at the local high school on, "Starting A Small Business".  Attendees were asked to give their ages on the signup sheet and when you learn that their average age is 46 you're very optimistic. 

At the lectern you look into the audience and see only very elderly people and lots of young children. Where is that 46 year old audience?  Well, half the audience are 85 year old men and each brought his seven year old grandchild with him.  The average age is indeed 46 but not the audience you had in mind.

An example closer to home is Rhode Island Law S-3050, property tax legislation passed by the General Assembly in 2006, which places a 4% limit on the annual increase in the property tax levy by 2013.

Like our speaker expecting lots of 46 year olds, we reasonably expect that our property tax bills will soon be limited to a 4% annual increase.  But like our speaker, we'd be dead wrong.

The reason is that we revalue property every three years. After any revaluation, while the average increase for all property owners will indeed be limited to 4%, individual property tax bill increases actually have NO limits. The 4% limit has effectively no meaning to individual property owners in a revaluation year.  Like our 46 year old audience, a 4% limit is not exactly what it seems. 

We believe that all property owners' tax bills should enjoy the same limits as the tax levies they pay for.

We can't help our speaker, but we can fix our property tax bills. Visit to see how.