Law of Large Numbers

Ibrahim Inal

Prereqs and Learning Outcome

Prereqs

  • Good understanding of probability
  • Basic understanding of statistical concepts

Learning outcomes

  • Understand law of large numbers
  • Learn a common misinterpretation of this law

Numbers, numbers, numbers…

Law of large numbers

From Wolfram Alpha

A “law of large numbers” is one of several theorems expressing the idea that as the number of trials of a random process increases, the percentage difference between the expected and actual values goes to zero.

It is a law that states that a variable revert to a mean over a large sample of results.

Confusion about the law

Gambler’s fallacy

Gambler in a roulette desk

I have seen 32 red, it has to be black next time!

An investor

They cannot keep growing, EBITDA will surprise everybody!

Further Reading

https://chance.amstat.org/2022/02/gamblers-fallacy/

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