The Law of Small Numbers – What Data Mistakes Are Made by Businesses?
Keywords – Law of small numbers – data mistakes made by businesses
We are talking about instances where people go around, ask a couple of people, and then generalise the understanding to the whole population. First of all, talking directly to a group has its own issues. We cover these issues in a different blog that you can find here.
Even if we eliminate the possibility of the answers being not truthful, the generalisation of ideas is already a problem.
Let’s look at a general example.
The Not So 50/50 Odds
Imagine you are given a box of 500 each dark and white chocolate pieces. What are the odds of pulling 50 dark and 50 white chocolate pieces after a 100 pulls?
There is a high possibility that the number of pulled dark and white chocolate pieces won’t be 50 each at the 100 pulls mark.
Now let’s pull 100 pieces more. Again, the chances of pulling 50 each of black and white chocolate pieces if rare. But, as an overall pull of 200, the chances of pulling a 100 dark and white chocolate pieces have increased.
The problem in real life is, people expect the pieces to be exactly 50 each at the 100 mark, and exactly a 100 each at the 200 mark. But, in reality, the chances of an equal occurence are quite low, especially with the small numbers. This incorrect expectation is the law of small numbers.
And, building an understanding of a behaviour based on limited data can be quite harmful for a business.
The Superiority of Digital Data
This is where digital data trumps.
If you want to know whether your business ideas will work or not, you do not have to go and ask people one by one. All you need to do is pull the information from digital channels and measure demand.
With digital data, you also get the option to play with the data and create new demands. But, generating a demand is generally harder than dealing with existing demand.
At Marketing Voice, we suggest starting off with what is already available.
Moreover, all our services are data driven, with an application of digital psychology to square off your business efforts. In simple terms, this increases your chance of hitting your audience with the right product, improving your odds of growth and further success.
To learn more, get in touch today.