Accuracy vs Precision 

Being a data guy, I constantly get asked questions about how precise something is or how accurate it is.  Most people tend to use these words interchangeably as if they are synonyms.  When in actuality they mean two very different and distinct things.  Yes, they both pertain to measurements and data and a variety of other things, but there is a distinct difference between them, and we’ll get to why this is important on our quest for a more meaningful and better life in a minute.

Precision

According to Wikipedia, “Precision is a description of random errors, a measure of statistical variability.”  It’s in essence a measure of the standard deviation of a bunch of measures or errors.  It also has to do with significant figures and decimal points.  Basically, if you shoot a bunch of arrows at a target, precision measures how close all the arrows are together.  Or, if you measure something, how many decimals you have in your answer are precision, the more numbers after the decimal point, the more precise.  6.99999999 is more precise than 7, for instance.

Accuracy

According to that same article, “Accuracy is a description of systematic errors, a measure of statistical bias.” In English, this means how close are you to reality.  I think this is a little easier to understand.  Again, using our archery metaphor, this is a measure as to how close you are to the bull’s eye.  Here’s a great way of looking at this:

 

Archery works great for this, although these look like bullet holes.

So What?

Because these two terms are so close together and used interchangeably, people tend to misuse them.  And more importantly, people tend to trade them off in their mind thinking that they are accurate when they are precise, or visa versa.  I bring this up because it likens back to our discussion on Lines & Bars.  If you calculate your savings rate down to 4 decimals points, you’re extremely precise.  But, if you are actually saving >50% but your calculation says that you are saving 45.678532% what good is it?  Computers and calculators all have given people an amount of precision for free that has been over whelming for a lot of people to handle.  They get so caught up in the minutia that they miss the bigger picture.

I guess what it boils down to and why I wanted to write about this is: I was talking to someone about their FI plans and figuring out their ER timeline, but they kept getting worked up about, if I spend this much, I’m going to have to work an extra month.  If I don’t take the trip I was looking forward to with my friends, then I might be able to push it up 3 months.  So, here we are, discussing how spending some money today, is going to affect which week or month someone’s net worth hits a certain number 10 years from now.  That is the very definition of needless precision.  If you hit it in 10 years, great.  If the market is friendly to you, you might hit it in 9.  If it’s not, well then it’s 12.  Or, all the people that get so worked up about whether they should use the 4% rule, or the 3.5% rule, or the 3% rule.  Again, accuracy matters, the principle matters and yes, there is a difference between the numbers, I get it.  But, the exact dead on number, matters very little.  Be flexible, quite frankly, no matter how many times you run the numbers, or how many different scenarios you compute, we don’t know the future.  We can’t predict it (If you can, please contact me, I have a lot of great ideas we can make a killing on).  Don’t let yourself get wrapped up in the quest for precision, when accuracy will suffice.  Understand the trade-offs between the two, is it worth worrying about that extra decimal point, when we really have no idea what’s going to happen on the grand scale?  I mean at this point in time, 140 characters from the president means way more than it probably should, who would’ve seen that coming??  Do you get caught up with needless precision?

4 Comments

  • Tonya@Budget and the Beach January 22, 2017 at 7:27 am

    I think there is so much placed on figuring out the exacts out there, that me personally, I feel, or felt pressure to “know” the exact number. It’s easy to get caught up in all of that.

    Reply
    • Mr WoW January 22, 2017 at 11:31 am

      That’s exactly it. It unnecessary precision, with computers and calculators it’s easy to expect an exact answer. But if we concentrate on accuracy, and allow some flexibility in the plan we can move forward. Keeping eyes on the prize of where we’re going and worry about the details as they come. We can get caught up in “analysis paralysis” and never progress or live our lives.

      Reply
  • wendy June 25, 2017 at 12:56 pm

    I have this eye rolling discussion all the time at work and it’s amazing, as you show, how often people bog down in it in their personal & financial lives too. This is why, in addition to ‘lines & bars’, I keep a simple bullet list/log/diary in chronological order of big FIRE wins, starting from my WTF!? moment when I first read MMM…. it helps show progress is being made in how I’m modifying my life and my viewpoints, regardless of the lag factor of when it shows in my finances.

    Reply
    • Mr WoW June 25, 2017 at 6:01 pm

      That’s a really great idea, maybe we will try to implement this. Keeping track of changes in mindset, so that we can see the changes in our lives as we move through. Thanks!

      Reply

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