Poisson distribution
The pattern that counts of rare, independent events follow, such as accidents, defects or calls per hour. It's set by the average count and shows how much the count varies by chance alone.
In plain English
With an average of 2 events a year, a year with none happens 13.5% of the time and a year with four or more 14%. The smaller the average, the bigger the swings relative to it, which is why one year of a rare event says little. Pool several years or many places before concluding that something changed.
Uncle Gary explains
A warehouse averaging two accidents a year had none and won a safety award. With nothing changing, such a site has at least one zero year in a decade 77% of the time.
Why it matters for your money
Large losses, defaults and market crashes are rare events too. A calm year proves little about risk; judge it on long records.
Where we tested it
Related terms
All glossary terms. Educational content, not financial advice.