Important: The stats package has been deprecated. Use the superseding package Statistics instead.
My investments have been earning me 10% the first year and 20% the second year. The ``average'' earning is
which is (about)
in percentage.
If I have 1 Glock initially, I have 1.1 Glock after 1 year and 1*(1.1)*(1.2)=1.32 Glocks at the end of the second year.
With the average earning I just computed, I have 1*R Glocks after 1 year and 1*R*R Glocks at the end of the second year.
which is indeed 1.32
As a second example, consider the ratio of the price of item A to the price of item B. One year the ratio is 3, the following year, the ratio is 4. The average ratio is
One would expect that a typical number to summarize the ratios A/B to be the reciprocal of the typical number used to summarize the ratios B/A. This is indeed the case with the geometric mean:
but not with the arithmetic mean
versus