# Mathematical Illiteracy and Price Falls

Was talking to a (non-practicing) accountant the other day.
Both of us were of the same opinion that prices were, in general, down 20%. But then he made a comment that stunned me.

He assumed that a 20% drop required a 20% rise to recover.
I had to point out to him that a 20% drop required a 25% rise to regain the loss. He whipped out his calculator (you can take the man out of accountancy, but you can never take accountancy out of the man !). After tapping in the required didgets he conceeded defeat.

In a fit of near panic he calculated what rises where required to offset price drops of 30% (43%) and 40% (67%). Luckily he didnt need his calculator to work out 50% (100%).

If an accountant can have an off-day (or off-moment) like this, do the vast majority of people out there realise the descrepency between percentage price falls and rises ?

A classic trap in finance.

Try geometrical verus arithmetic returns and assymetric probability distributions and median versus mean measures of average.

I understood all that.
I am officially a nerd .
Now wheres my dungeons and dragons set …

Maybe that’s the reason he’s non-practising…

How about, “house prices are 9 times average wage”
If the average wage is 35K and the Head of VHI is on 635K then there are 60 people on 25K just to average out one person’s discrepancy.
Can anyone give me a figure for the median wage?

Ah God bless stats, a politician’s best friend after yer local plasterer.

Average industrial wage is €32,000 therefore even at this point in time the average house in Dublin (say for arguments sake a 3-bed in Artane) costs €380,000 = 11.8 times average wage.

If you look back over the early posts of the early days this was an owl drum I use to bang and I thought I was being pedantic but holy bat crapper batman its worse than I could ever have imagined.

I’ve always been baffled as to why accountants use calculators for even the most simple calculation. Do they just have a (self-imposed) blanket ban on mental arithmetic?

Nope, they just like to be accurate to 2 decimal places !

I have to say, I must be one of the Mathematically Illiterate, I don’t understand where these figures come from, is it from inflation?

Reminds me of the golden rule about going into expensive shops where the goods have no price tags. If you have to ask … ’

20% of 100 is 20
So if something worth 100 drops by 20% it will only be worth 80.

25% of 80 is 20.
So if something worth 80 increases by 25% it will be worth 100.

Or if you prefer:

50% of 100 is 50.
if something worth 100 drops by 50% it will only by worth 50.

50% of 50 is only 25
if something with 50 increases by 50% it will only be worth 75
something worth 50 would need to double in value (increase by 100%) to be worth 100.

If something falls in value by 100%, it will be worth 0, and no percentage
increase will ever make it worth any more than 0.

Bottom line. If you by a house and it drops in value, you need it go go up more in percentage terms than it fell, just to get back to it’s original value.

The bigger the drop, the more the climb has to beat the drop in order to recover.

-Rd

I think in layman’s terms noz, if a house is “worth” €400,000 and drops by 50% it has dropped to €200,000. If the €200,000 house only rises again by 50% it only rises to €300,000. Am I right folks?

I would love to see the Dublin average wage versus average house prices in Dublin?

…also what would we be talking about in terms of multiples for other major cities globally…I know this is very regional stuff but comparisons are always good.

Thank you for the explanation daltonr and aspro, I’m not a dolt, (or an accountant!) I had just never thought of it like that.

Sorry too busy clapping myself on the back for being more numerate than an accountant

i hope nobody sees you doing that … coz you certainly wont look as smart as one. Call the men in white coats !

Speaking as the holder of a B.Comm, it’s because accountants as a rule are the slow, plodding, unimaginative, lights-are-on-but-noone-home type. Accountants are trained monkeys, more or less. Learning by rote - this number goes there, add these two and the answer goes there, put all the bricks in place methodically and hey presto! a P&L statement.

The height of excitement for an accountant is the once a week where they have to stray into the exotic waters of multiplication…

Accountancy and Marketing are two professions I really have nothing but utter contempt for. Even lower than EAs and bank “economists” in my book…

BCOMM

Pfffff

Pot Kettle anyone?

a step above BESS in Trinity (if that fiendishly difficult degree is still being offered)