Yes, Numbers Can Lie

Written by Paul Kounnas Thursday, 12 May 2011

You can influence the way people dance by the music you play. You can also, just as easily, make numbers dance to your tune.

How is it possible to make the wrong numbers look right?

Let us look at the weekly reported auction clearance rates as an example. The auction clearance rate earlier this month was reported as 61%, but it could just as accurately been reported as 43%. How can this be right?

If you were to count the number of properties sold at the fall of the hammer on the day of auction and divided it by all the properties booked for auction for that same weekend, you will have a correct clearance rate of 43%.

The reported figure of 61% however is also accurate, if you agree with the following reasoning: If you add to the auction results the number of properties sold by private negotiation before the auction, as well as the number sold by private negotiation after the auction, and you ignore the number of auctions that were not reported or withdrawn, you’ll then get a 61% clearance rate. Which calculation is right? Both figures can be justified depending on which numbers you pick to support your argument.

Which figure do you think more accurately represents the true clearance rate?

As you can see, it’s not hard to make the wrong numbers look right. It simply comes down to which way you want the numbers to dance.

Next time someone says to you, “numbers don’t lie”, perhaps you will now be a little wiser with how you wish to respond. You’ll know that their maths may be correct but the problem is they may have deliberately selected the set of numbers that justifies their reasoning and proves their cause.

Auction results can be handy for interpreting market sentiment. They can give us a regular snapshot of the market. But don’t forget that auctions only represent a small sample of the market. Australia-wide, auction sales represent less than 20% of the market.

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