Lies, Damn Lies, and Statistics

You hear a stat, it sounds convincing, you form your opinion or you confirm that your belief is true.  Unfortunately stats from groups with an agenda, whether unintended or on purpose, are usually wrong.

My favorite example is when an elderly woman spilled McDonald’s coffee on herself and sued McDonalds because their coffee was too hot to be safe.  One of McDonald’s responses was to conduct a survey of its customers to prove that their coffee was not too hot.  In this case WHO they surveyed was the problem.  For example, I had purchased McDonald’s coffee in the past and found it to be too hot.  I had to pour out half the cup, then try to fill it with the tiny half-and-half cuplets, and then still had to wait 30 minutes before it was safe to drink without burning my tongue.  So I was a former customer, not a current McDonald’s coffee drinker.  McDonalds only surveyed people who were still drinking McDonald’s coffee.  Of course they didn’t think it was too hot, otherwise they would have quit drinking it like me.

WHAT questions you ask is a trick that can be used to get the results you want.  The comment here, from someone who was recently called for a survey, is a real world anecdote of how this is done.  As you can see the questions leave on one answer that doesn’t help the surveyors get the answer they want, so they follow-up that question with more and more skewed questions until this particular person decided to opt out of the survey – thus cancelling the answer that didn’t agree with the outcome the surveyors wanted, and anyone who kept answering would give them the answers they want.

The moral of the story is that any “proof” that something is true needs to be taken with a grain of salt until you review how the “proof” was derived.

Another example that irks me is from the book Freakonomics.   They found a stat that showed that Realtors sell their own homes for 3% more than their own clients.  This is a case of a stat more than likely being true.  But the conclusions drawn here is the problem.  No further study is done, the Freakonomics authors conduct one interview and conclude that Realtors don’t care whether or not their clients earn an extra $10,000 (on a $300,000 home) because they only make a few percentage points in commission on that extra $10,000.

I’m a Realtor and I can propose all kinds of other reasons why Realtors may sell their homes for 3% more than their clients, and these reasons would require study before anyone could jump to the kind of conclusions that the Freakonomics authors jumped to.  Interestingly, if I were to use the Freakonomics logic on them I could easily “prove” that they purposely did no research on this topic, and purposely lied in order to sell books.  After all, their incentive to tell the truth when Realtors are one of the least trusted professions is nil, and their incentive to sell books with shocking conclusions is extremely high.  So they lied because it would make them money, and because it takes no effort or money to just form a conclusion with no extra study.

The reasons Realtors might sell their homes for 3% more are many.  For one, we Realtors know that spending money on staging, uncluttering and cleaning up pays for itself and then some.  It might cost you $5,000 to stage your home, and in the $300,000 home example you sell it for $10,000 more.  I’d argue Staging as an even bigger ROI than that, but you get the point.

As a Realtor my clients complain about all of the showings and open houses we require to properly expose the home.  Cleaning up constantly is a pain.  Many have thrown up their hands and taken the first offer because they couldn’t take it anymore – this has happened to me as early as one week into the process, and by one month nearly every Seller is fed up and done.  I sold my own home, and it was a royal pain, but I did it because I took my own advice – stick it out, keep cleaning, deal with people tracking dirt through, and putting me and my family out of the house on a regular basis.

One reason that doesn’t make sense to most sellers is that starting with a price that is too high actually costs you more money.  A home that sits on the market for a long time and goes through lots of price drops almost invariably sells for less than it would have if priced correctly from the start.  And it is rare to meet a Seller who doesn’t believe their home isn’t worth more than the exact same home right next door to them.  Add on to of that a Seller who won’t stage, or uncluttered, or paint, or garden, or make the home fully available for showings, and you have a recipe for selling your home for less than a Realtor who prices right, and does all of the upfront work.

The moral of the story is to not trust stats unless you look into it.  The one that is currently driving me up a wall is the idea that the rich are being unfairly taxed because they are paying a larger total share of all taxes than ever before.  On the face of it you think “gee, maybe we should lower tax rates on the rich”.  But the reality is they are paying more in taxes because they are making a LOT more into total income, and have gained a LOT more in total share of all wealth.  What’s more, an entire class of tax payer has been wiped out because they don’t have jobs any more.  So simple math “proves” that the rich pay too much in taxes.  But equally simple math “proves” that they aren’t paying enough.

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