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-   -   Why is the median net worth a more useful measure than the average net worth. (https://www.askmehelpdesk.com/showthread.php?t=550995)

  • Feb 3, 2011, 05:07 PM
    Thara1990
    why is the median net worth a more useful measure than the average net worth.
    this is the answer I put:

    Median net worth is a more useful measure than the average networth because its gives you the exact number quality total of each product we are graphing. But the average will provide us information of the total divided by the amount of the products and not the exact amount. When graphing, it is easier to compare when you have the exacts amount for each product than the average net worth.


    ((((if this is correct... please help me write this in better words, if wrong correct them please... thank u ^_^)))... *english is my second language, so I'm not much good with word.. thnx again!! )

  • Feb 3, 2011, 09:07 PM
    jcaron2
    The reason median is often a better measure than average is because it is not skewed by a few values which are very, very different from the majority (in statistics, these values would be called "outliers"). This is especially true with measurements such as net worth (which usually refers to the total value of a person's income plus assets), where there's virtually no upper limit.

    Here's an example:

    Imagine a small country with a population of 100 people. 33 of those people are poor and have a net worth of less than $1. 33 others are middle class and have a net worth between $1 and $2, and 33 more are in the upper class with a net worth between $2 and $3. That makes 99 people. The 100th person is the king, and he has a net worth of $100,000,000!

    Now imagine that you were thinking of moving to that country and you wanted to find out how much money you could expect to have as a resident. One way to estimate it would be to calculate the average net worth of the citizens by adding up all of their individual net worths, then dividing by the total population. If you did that, you'd find that the average net worth was about $1,000,000! Obviously, that would set very unrealistic expectations! A net worth of $1 million is not at all typical for the citizens.

    A different way to find out the net worth of a typical resident would be to calculate the median. To do that, you'd make a list all 100 residents, sorted from richest (the king would be at the top of the list, of course) to poorest. Then you'd go half-way down the list, to the 50th and 51st values, and you'd look at the net worth of THOSE people. The median value for the whole population would be directly in between those two numbers. The result would be such that half of the people had a net worth higher than that value, and half had a net worth that was lower. In this case, it would probably turn out to be somewhere around $1.50! That's a HUGE difference from the average value of around $1 million, and it's a much, much better measure of the typical net worth of a citizen of that country.

    Does that make sense?

    By the way, your English is very good. :)

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