Thursday, October 25, 2007

An Oldie But a Goodie

This statistical error is very well-known, but it’s worth calling out again. I recently received a mailer from GEICO trying to persuade me to switch car insurance providers. Among other things, the mailer claims:
Even if you’ve received a rate quote from GEICO, try us again, because new customers report an average annual savings over $500. (emphasis added)
Wow, does that mean a random person switching to GEICO can expect to save, on average, about $500? Um, no. Most, if not all, of GEICO’s new customers are people who expected to save money because GEICO gave them a quote better than their current insurer. The people who got a quote worse than their current insurer either didn’t switch or switched to someone besides GEICO. So the sample of new customers is obviously biased in favor of people who would save money and against those who would lose money. It would be very surprising for the average savings of new customers not to be positive.

1 comment:

Gil said...

Hey, I made the same observation in the comments to this post.

The post was mainly about an even stranger aspect of the GEICO ad (finding a $495 bill).