$1 Toronto real estate

Average is like my reciprocating saw: never as useful as I expect. Part of the reason average sticks around is economics, It’s cheap to produce.. Average is a crude tool, like with student loan debt, and often hides the heterogeneity of a situation.

We’re entering an era of precision. One covid lesson has been the effect size of heterogeneity. At the macro level, the impact of covid depends on time and place. At the micro level, the impact depends on age, immunity, and social network. Covid was (is?) difficult to judge because there are a lot of factors that need fitted together.

If we need precision we should probably think about distributions at least as often as we think about averages. An example is the periodic one dollar real estate listing. Yes, this generates attention, spins up the market mechanism, and might be the marketing magic an owner needs. But it also changes the distribution of offers without changing the average offer.

“When you give people a listing price they ask if it’s worth more or less and by how much, so they anchor at the listing. If you don’t have an anchor people build a valuation from first principles. The average (offer) doesn’t change but the distribution does. For a one dollar listing you get some really high rates and some really low ones. In the listing price you get distributions around what the asking price was. This is a world where the seller doesn’t care about the average, they only care about the top end of the distribution.” – Dilip Soman, The Decision Corner, October 2021

Maybe this is being too hard. Average, like the saw, has its uses. The aim here is to combine numeracy with psychology to get by in the world. That means presenting the ‘best’ wait times or predicting rain more often. Being numerate is understanding that the average age is 78, but if you make it to 65 you’ll probably live well past eighty.

“The average looks like 10-12 years lost due to Covid – but that’s an average of a distribution with a very odd shape, a highly skewed distribution, some people have lost forty years of life. The peak of the distribution is people who lost less than a year of life.” – David Spiegelhalter, Risky Talk October 2021

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