An Essay on the Median Forbes Billionaire in 2013 Why Median is a meaningless stat

Aliko Dangote Carlos Slim Helu No. 1 in average-billionaire-worth- by-country list No. 1 by net worth, 2013 http://upload.wikimedia.org/wikipedia/commons/thumb/1/1e/Aliko_Dangote.jpg/800pxAliko_Dangote.jpg http://specialsimages.forbes.com/imageserve/002A3Is8ql3Jp/186x282.jpg?fit=scale&background=000000

Okay, you heard about this first here. In all the years that the Forbes billionaires lists have been published, the first rich list actually goes back to 1918, see Ref. [1], they never thought about the median billionaire. For that matter, the good folks at Forbes never thought about even the mean billionaire. Now, that sounds terrible! Lets be nice and call him/her the average billionaire, ok? Oh, no, thats even worse! You want to call a billionaire, average?
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A story about the Median

Heres an interesting story about the Median. Sir Francis Galton, a cousin of Charles Darwin, was prominent in many fields, including statistics and promoted what we call correlations and linear regression analysis. He found the famous relation between the height of the son and the height of the father (1,078 father-son pairs were studied). Anyway, he once attended a village fair where an ox was on display. The villagers were asked to guess its weight, after slaughtering and dressing. One man guessed it EXACTLY 1,198 pounds. There were nearly 800 guesses. Galton noted that the middlemost (what we call the median) was popular and higher and lower guesses were shouted out. The median was within 0.8% of the true weight. But, the average 1, 197 pounds, was even more accurate. Even after this Galton story, I dont know which wise guy told the US Bureau of Statistics to use the median household income in all their comparisons of trends. (Other countries also use median household income.) In my article on the median billionaire (click here), I have shown that the median is an utterly meaningless statistic! Sources: http://en.wikipedia.org/wiki/Francis_Galton http://www.stat.tamu.edu/~hart/212/simpreg1.pdf Galtons graph of sons height versus fathers height is on page 6.

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Now, I know why they never thought about the average or the mean billionaire. For that matter, they did not even bother to publish the average net worth of the billionaires for each country. This stat showed up for the first time this year, although the average net worth of billionaires has been talked about, off and on, for a long time. Somehow, it never seems to have caught on. Nigeria grabbed the top spot this year with an average net worth $10.4 billion. It is probably going to stay that way for a while now. You see, in Nigeria, they only have two billionaires: Aliko Dangote with a net worth of $16.1 billion and Mike Adenuga with a net worth of $4.7 billion. Add their net worths for a combined net worth of UN = $20.8 B. Divide by N = 2, the total number of billionaires, and we get the average net worth of U = UN/N = $20.8/2 = $10.4B. It turns out that this is the highest value of U if we consider the entire list of 1426 billionaires in all the 64 countries. And so it is that, after being a billionaire for so many years, Aliko Dangote finally gets his picture all over the Internet since this stat about the average billionaire worth by country was published for the first time this year. If Nigeria had a third billionaire, worth say $1 B, the lowest net worth to get on the list, or any amount lower than $4.7 B, Mike Adenuga would have received the high honor of being the median Nigerian billionaire. The median value in a data set is determined by arranging all the numbers in ascending order and finding the middle value. So, Mr. Adenuga would have been our median man, if Nigeria had a third billionaire, see below.

Median and Mean Value Illustration

Name Aliko Mike Charles Net worth, $B $16.1 $4.7 $2.1 Median value: $4.7 B Mean value: (16.1 + 4.7 + 2.1)/3 = 22.9/3 = $7.6B Our third billionaire, named Sir Charles, has a net worth of $2.1B. Mike would be the median billionaire and the average billionaire worth would drop from $10.4 B to $7.6 B and Nigeria would come tumbling down the top spot in the average-billionaire-worth-by-country list.

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But, you see this listing of the billionaires, in descending order of their net worth also tells us something interesting about the stat called the median. To find the median value, you dont have to do any calculations. Just look at the list and find the one in the middle. Sir Charles could have a net worth of $2.4B or $3B, or $4.5B, or his net worth could drop to the minimum of $1B to get on the billionaire list. No problem. Mike is still our median billionaire. The median value is always the value right there in the middle. With only three, as in our example, it will remain forever constant, and Mike remains the median man as long as the third has a net worth less than Mikes net worth. Now, you can begin to appreciate how useless this idea of a median really is. But, it is widely used, for example, by the US Census Bureau. For that matter, they only talk about the median household and not much else. There are millions of households and you can never really figure out the problem with the stat called the median that I have just described. Ok, what happens if there is no third billionaire and there are only two billionaires in Nigeria, or some other country? According to the rules of determining the median value, we must take the average of the middle two values. In the case of Nigeria, the middle two are the only two standing and so the median equals the mean. Bingo! I finally, found a way to make the mean the median or vice versa. To illustrate this idea of a median, let us consider two more countries: New Zealand with three billionaires and Norway with six billionaires. The New Zealand 2013 Billionaires Name Christopher Richard Graeme Forbes rank 1342 502 229 Net worth, $B $1B $2.85 $5.3 Median value: $2.85 Combined net worth, UN : $9.15 B Average U: $3.05

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To find the median value, we dont need a calculator or do any mental math. Just arrange the billionaires in ascending order (or descending, really shouldnt matter) and look for the one in the middle. For New Zealand, Dick Chandler gets the honor of being the median billionaire. It is easy when we have an odd number to find the median. In general, if N is odd, the middle one is the (N + 1)th item in a list of N items. If we have 5 billionaires, the middle one is the (5 + 1)th billionaire, or the third one in the list. It gets a bit more complicated if there is an even number of billionaires, like we do with Norway. The Norwegian 2013 Billionaires Name Olav Stein Kjell Arne Andre Peter Forbes rank 198 329 458 931 1107 1175 Net worth, $B $6B $4B $3B $1.6 $1.3 $1.2 Median value: $2.3 Combined net worth, UN : $17.1 B Average U: $2.85 For Norway, we must consider the middle two billionaires, Kjell and Arne, and find the average of their net worths ($3 + $1.6) = $4.6/2 = $2.3B. For the average or mean value for the country, we find the combined net worth of all the N = 6 billionaires and then divide by N = 6 to get U = $2.85B. In this case, the mean is greater than the median. But, there is no billionaire in our list with a net worth of $2.85B. Both, Kjell and Arne get their pictures posted as the median guys. Finally, consider the following two simple examples where the median is unaffected although the average, or mean has increased. Numbers 1 2 3 4 5 Value 0 3 8 11 18 In this list, sum equals 40 and the average equals 40/5 = 8, the median value. Numbers 1 2 3 4 5 Value 3 7 8 10 17 The sum in lower row equals 45 and the average is 9 but median is still 8.

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The same applies now when we look at the whole list of 1426 billionaires for the year 2013, or the millions of US households that the US Census Bureau must consider to find the median and the mean net worths of US households, year after year. The properties of the median and mean should make any one wonder what we can get out of the median stat when we are dealing with the puzzling mass of millions of numbers; see also a nice article by Felix Salmon, Ref. [5], on the significance of the median net worth of US households. The BIG news of the week (back in June 2012 when the article was written) was that the median net worth of the US household had fallen. After reviewing the data more critically, and considering some more data from earlier years, Salmon says that it is fair to conclude that the median net worth of US households has remained roughly constant. This is one of the nicest (and thoughtful) reporting of a news item that I have seen. But, a number of others have been saying before, and since, that the median net worth is declining, see Tami Luhby on CNNMoney, Ref. [6] and the other by the economists of US Census Bureau, Ref. [7]. Returning to the Forbes 2013 Billionaire list, to find the median we must get to the middle of 1426. If we had 1425, we would be looking at number 713 in our list, with 712 on either side. Since we have 1426, we must look at both 713 and 714 in the list and find the average net worth of these two. This still leaves 712 on either side of our middle two billionaires. So, here it is. I went down the list of the billionaires. It is really easy to do since the entire list is arranged with 100 billionaires on each page (or sometimes I get it organized with 10 on each page). Today, I got both and now as I am beginning to count, I got the list organized by 10 on each page. So, all I have to do is go to page 71 (710 total) and then to page 72 where I should find the 713rd and 714th billionaires. But, it gets funny now. On page 71, after rank 670 for Xu Jingren & family (from China, net worth $2.2B), starting with Juan Abello of Spain, I find seven billionaires ranked 704, with a net worth of $2.1B each. And, this continues all the way down page 72,
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with all ten billionaires sharing rank 704 and having a net worth of $2.1B. It continues of page 73. Everyone is ranked 704 again. It is only page 74, after five more billionaires ranked 704 that we find the next rank of 736. Earlier, I had seen this list organized by 100 per page and as I scrolled down all I saw was rank 704. I did not even have to count to 13 and 14 to find the median billionaire! And, the same now, when I found the list organized in groups of ten. From 670 we jump to rank 704 and then to rank 736. So, our median billionaire is the one ranked 704 with a net worth of $2.1B. But, in this list every one with rank 704 is also the median billionaire. No wonder, Forbes never thought of this idea of median billionaire. I really wanted to add a picture of our median billionaire here with this essay, but, alas, I cannot. There are too many of them. Now, perhaps, you can also begin to see how this whole idea of median net worth of US households is really a meaningless statistic. I have always felt that way. But, so many statisticians, from all over the world, who deal with millions of households, use it daily. After thinking about the median billionaire, and trying to create one from the 2013 Forbes billionaire list, I can say with certainty that we must be very very wary of this median net worth and median household. The median value of anything is not something to take very seriously. Cheers! Have a great median day.

Reference List
1. The First Rich List, by Arik Hesseldahl and Claudia DeMairo, September 27, 2002, http://www.forbes.com/2002/09/27/0927richestphotos.html see also http://www.forbes.com/2002/09/27/0927richest.html The combined fortune of the 30 richest was $3,680,000,000 ($3.68 B) and
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2.

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the average net worth was $0.123 B ($122,666,666). The full list of the 30 richest men in 1918 may be found on page 15 of 17 of this article. The Worlds Billionaires, The Richest People on the Planet 2013, by Luisa Kroll and Kerry A Dolan, March 4, 2013, http://www.forbes.com/billionaires/ Inside the worlds billionaires: Facts and Figures, by Luisa Kroll, http://www.forbes.com/sites/luisakroll/2013/03/04/inside-the-2013billionaires-list-facts-and-figures/ Mapping the wealth of the worlds billionaires, by Luisa Kroll, March 9, 2013, http://www.forbes.com/sites/luisakroll/2013/03/09/mapping-thewealth-of-the-worlds-billionaires/ Mapping the wealth of the worlds richest, by Ricardo Geromel, March 22,, 2013 http://www.forbes.com/sites/ricardogeromel/2013/03/22/forbesbillionaires-map/ Chart of the day: Median net worth, 1962-2010, Reuters, Posted June 12, 2012, by Felix Salmon (click here), http://blogs.reuters.com/felixsalmon/2012/06/12/chart-of-the-day-median-net-worth-1962-2010/ The article starts with, The big news from the Fed this week is, in the words of the NYT headline, that Family Net Worth Drops to Level of Early 90s. But if you look at the actual report, there isnt any data in there on family net worth before 2001. So, after reviewing the data from 1962 to 2010, the author concludes I think its fair to say that the median US household is no richer now than it was 30 years ago. Where American stash their Wealth? by Tami Luhby, March 22, 2013, http://economy.money.cnn.com/2013/03/22/americanhouseholdwealth/?source=cnn_bin Household Wealth in the US: 2000 to 2011, by Alfred Gottschalck, Marina Vornovytskyy and Adam Smith, chttp://www.census.gov/people/wealth/files/Wealth%20Highlights%20 2011.pdf The median net worth values for 2000, 2005 and 2011 are also given here. The dollar amounts are in constant 2011 dollars with inflationadjustment factors. Between 2000 and 2011, aggregate net worth of $28.9 trillion to $40.2 trillion.
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9. Income, Poverty, and Health Insurance Coverage in the United States: 2011, Current Population Reports, P60-243, Published by US Census Bureau, http://www.census.gov/prod/2012pubs/p60-243.pdf Table A1, which starts on page 31 has the required data on number of households N, the mean household income, and the median household income for the years 2000-2011, with detailed breakdown by races gender, and age (click here to get table).

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Related articles on the Billionaire Problem

1. The Median Net Worth of the 2013 Forbes Billionaires: Why the median is a meaningless stat, Published March 26, 2013 http://www.scribd.com/doc/132433860/An-Essay-on-the-MedianForbes-2013-Billionaire-Why-the-Median-is-a-meaningless-stat 2. Average Net Worth of Billionaires and Ordinary US households, Published March 24, 2013, http://www.scribd.com/doc/132189331/Average-Net-Worth-ofBillionaires-and-Ordinary-US-Households 3. Empirical Evidence for Entropy Outside Physics: Wealth Distribution among billionaires in the 2013 Forbes and Hurun Rich Lists, http://www.scribd.com/doc/132059874/The-Empirical-Evidence-forEntropy-Outside-Physics-Wealth-Distribution-among-the-billionaires-of2013-Forbes-and-Hurun-Rich-Lists Published March 24, 2013. 4. Wealth Distribution between the 2013 Forbes and Hurun Rich Lists, http://www.scribd.com/doc/131830628/Wealth-Distribution-Betweenthe-2013-Forbes-and-the-Hurun-Rich-Lists, Published Mar 22, 2013. 5. Average Net Worth by Country - Part 1: Preliminary Analysis of the 2013 Forbes Billionaire Data, Published March 18, 2013. http://www.scribd.com/doc/131208984/The-Average-Net-Worth-byCountry-Part-I-Analysis-of-the-2013-Forbes-Billionaires-Data 6. Average Net Worth by Country - Part 2: Analysis of the 2013 Worlds Billionaire Data, to be Published March xx, 2013. 7. China has fewer billionaires than most other large countries, Published March 21, 2013, http://www.scribd.com/doc/131583456/China-Has-Fewer-BillionairesAccording-to-the-Billionaire-Net-Worth-Analysis2013 8. Average Net Worth of Billionaires by Country: 2013 Hurun Rich List,
http://www.scribd.com/doc/131764299/Average-Net-Worth-of-Billionairesby-Country-The-2013-Hurun-Rich-List Published March 22, 2013.

9. The Average Net Worth by Country, Part 1: Introducing the x-y Diagram, Preliminary Analysis of the Forbes 2013 Worlds
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Billionaires Data, Published March 19, 2013, http://www.scribd.com/doc/131208984/The-Average-Net-Worth-byCountry-Part-I-Analysis-of-the-2013-Forbes-Billionaires-Data 10. Average Net Worth by Country - Part 2: Analysis of the 2013 Worlds Billionaire Data, to be Published March xx, 2013. 11. The Recent Growth in the Average Worth of US Billionaires (09-13) A Curious Limits to Growth Revealed Again, Published March 18, 2013 http://www.scribd.com/doc/131005255/The-Recent-Growth-in-theAverage-Worth-of-US-Billionaires-%E2%80%9909-%E2%80%9813-ACurious-Limits-to-Growth-Revealed-Again 12.Quantitative Comparison of the Billionaires in the Forbes Hall of Fame, http://www.scribd.com/doc/130826078/Quantitative-Comparison-of-theBillionaires-in-the-Forbes-Hall-of-Fame Published March 17, 2013. 13.Growth in the Combined Net Worth of Billionaires from 2000-2013: An Interesting Limits to Growth is Revealed, Published March 15, 2013, http://www.scribd.com/doc/130517722/Growth-in-the-Combined-Net-Worthof-Billionaires-From-2000-2013-An-Interesting-Limit-to-Growth-is-Revealed 14.Growth of Billionaires Worldwide and in the USA: Analysis of the number of billionaires data since 1982, Published March 14, 2013, http://www.scribd.com/doc/130377891/The-Growth-of-BillionairesWorldwide-and-in-USA-Analysis-of-the-data-since-1982 15.Countries with the most billionaires in the 2013 Forbes Billionaire List, Published March 9, 2013, http://www.scribd.com/doc/129406030/Countrieswith-Most-Billionaires-in-the-Forbes-2013-Billionaires-List 16.Average worth of the Top 10 Billionaires in a Country, Published Mar 11, 2013, http://www.scribd.com/doc/129863162/Average-Worth-of-the-Top-10Billionaires-in-a-Country 17.Per Capita Trends for Ultra High Net Worth Residents in US Cities, Published March 11, 2013, http://www.scribd.com/doc/129722844/Per-CapitaTrends-for-the-Ultra-High-Net-Worth-UHNW-Residents-in-US-Cities 18.Europe and Asia-Pacific billionaires in the Forbes 2013 list: Whats the difference? Published March 10, 2013 http://www.scribd.com/doc/129634796/Europe-and-Asia-Pacific-Billionairesin-the-2013-Forbes-List-What-s-the-difference
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19. The Rate of Creation of Billionaires: Analysis of the Forbes 2013 Billionaire List, Published March 6, 2013, http://www.scribd.com/doc/128944910/The-Rate-of-Creation-ofBillionaires-Analysis-of-the-2013-Forbes-Billionaire-s-List 20. Billionaires and Calculus: Ratio versus Rate of Change Is Einsteins Work Function Observed In this Problem? Published March 5, 2013. http://www.scribd.com/doc/128610494/The-Forbes-Billionaires-andCalculus-Is-Einstein-s-Work-Function-Observed-Here 21. Billionaires and the Population Law: Analysis of the 2013 Forbes Billionaires List, to be published shortly.

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About the author V. Laxmanan, Sc. D.

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the groundbased experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by Planck, referred to here as the generalized power-exponential law, might
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actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton. Finally, during my professional career, I also twice had the opportunity and great honor to make presentations to two Nobel laureates: first at NASA to Prof. Robert Schrieffer (1972 Physics Nobel Prize), who was the Chairman of the Schrieffer Committee appointed to review NASAs space flight experiments (following the loss of the space shuttle Challenger on January 28, 1986) and second at GM Research Labs to Prof. Robert Solow (1987 Nobel Prize in economics), who was Chairman of Corporate Research Review Committee, appointed by GM corporate management.

Cover page of AirTran 2000 Annual Report

Can you see that plane flying above the tall tree tops that make a nearly perfect circle? It requires a great deal of imagination to see and to photograph it.

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