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Red-Blooded Risk: The Secret History of Wall Street by Aaron Brown

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Numbers

I'm one of those people who always add things up: restaurant checks, bank statements, W-2 forms, whatever. The numbers are frequently wrong. Most people don't know that, because they don't check. If a person has to enter a number, say a waitress or retail salesperson, they make errors at a rate of about 1 percent to 5 percent. If a person has to do a simple calculation, like adding up a check or figuring sales tax, the error rate is about 5 percent to 20 percent. For example, I always add up the prices of the items I buy in the supermarket as I pick them out. In the days before supermarket scanners, if I had a full cart, the total at the checkout was wrong more often than not. With, say, 50 numbers to punch into a machine, the average checkout clerk made about one error.

That figure sounds reasonable to most people. The misconception is that “official” numbers from big institutions printed by computer are more likely to be correct. I have found similar error rates with brokerage statements, mortgage computations, and minor IRS tax tables, just to name a few. In the early days of adjustable-rate mortgages, the error rate on interest computation was greater than 50 percent, and it's not zero today. Another frequent error is in the correct principal and interest amount due when someone pays off a mortgage early. It's more often wrong than right in my experience. No one actually reads the thick pile of documents with dozens of signatures that make up the legal mortgage file; ...

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