Follow TopicFollow Contributor Share Feedback
The Law of Small Numbers and Compliance Programs

The Law of Small Numbers and Compliance Programs

by Jason Norman Lee

Managing Director of Legal and Regulatory at Temasek

Jun 07, 2023

Compendium

Humans like to make inferences. That by itself is not an issue. It’s only natural that with resource and brain-capacity constraints, one extracts some samples from a data-rich environment and draws conclusions. Technically, this process is the selection of a subset (a statistical sample) of data from within a larger statistical population to estimate characteristics of that larger population. 

However, an issue surfaces with the incorrect belief that small samples are likely to be highly representative of the populations from which they are drawn, similarly to large samples. This is known as the Law of Small Numbers or LSN. Daniel Kahneman and Amos Tversky produced a paper in 1971 discussing this cognitive deficiency. LSN is not only something to be studied in a classroom, but it has found to be present in the fields of economics, business, and even warfare. An example of LSN is the supposed ‘Mozart effect’. A study suggested that playing Mozart music to babies might make them smarter and this sparked a whole industry and initiatives of CDs and videos. 

This content is available to paid Members of Starling Insights.

If you are a Member of Starling Insights, you can sign in below to access this item. 

 

If you are not a member, please consider joining Starling Insights to support our work and get access to our entire platform.  Enjoy hundreds of articles and related content from past editions of the Compendium, special video and print reports, as well as Starling's observations and comments on current issues in culture & conduct risk management.

Join The Discussion

See something that doesn't look quite right?

We strive to provide high quality and accurate content at all times. With that said, we realize that sometimes links break, new information becomes available, or there is something that you feel we may have missed.

If you see something that you think we should be aware of, we would love to hear from you. Feel free to drop us a note below and leave your name and contact info if you'd like to hear back from us.

Thank you for being a key part of the Starling Insights community!