Flaw of averages
The mistake of treating the average case as if it will actually happen. The average outcome is often rare, and the result of average inputs is not the average result.
In plain English
An average squeezes a spread of possibilities into one number, and that number can be one that never occurs. The average of a cold and a warm preference is a temperature nobody likes; the average of the beach and the mountains is a rest stop. Before planning around an average, look at the spread around it.
Uncle Gary explains
Gary likes 66°F and Linda 74°F. Their 70°F compromise suits the average of Gary and Linda, a person who does not live in the house.
Why it matters for your money
Average market returns hide very different individual years. A plan that only works if every year is average is a plan for years that rarely happen.
Where we tested it
- The Thermostat War: Why Splitting the Difference Pleases Nobody
- What Are the Odds of Being Struck by Lightning? And Does It Strike Twice?
Related terms
All glossary terms. Educational content, not financial advice.