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Law Of Large Numbers

Updated on March 1, 2023

Law of Large Numbers refers to the probability of the average or the actual mean of a sample is closer to the sample mean as the sample set increases over time. The term has wide implications, however, in financial or business terms, it refers to the inability of a business, especially a large-scale organisation, to maintain the growth levels or trends after reaching its peak.

This law is used to cite the accuracy of the data collected over time as each additional data point will drive the analysis closer to the actual mean of the set. The selection of the data sets is crucial for the law of large numbers to hold true. If the data points of the large set or the subsequent sample sets are deviating from the actual population to be considered, the resultant analysis of the mean of the sample may be different from the actual mean.