Well, there you are implying what I just wrote above, but you are also missing another issue - increased sample size gives you more opportunity for extreme events (even in the absence of environmental variation).
This is easy to see with any random number generator. You can do this in Excel if you want. I wrote a little application I called the Random Cannon, to play around with group size and some methodological issues while knowing exactly the parameters of the hypothetical loads. In any event, you can find, without environmental change, that the probability of observing an extreme random event increases with sample size.
Apologies if I was tearing down a straw man.
The issue I'm getting at, which from what I can tell is
widely misunderstood in the shooting world, is this:
We shoot practice/testing groups in order to try and figure out how confident we can be that we'll hit our target when push comes to shove. To use my own hunting rifle goal as an example, say I want to be able to ethically kill a deer at 500 yards, which by my estimation means that
the rifle-ammo combo should be capable of at least a 95% chance of hitting within an 8" diameter circle at that range, ignoring environmental- and shooter-induced sources of error, not because they're not important, but simply because they're independent of the raw accuracy potential of the rifle-ammo combo. (Please note this accuracy standard is just an example and not something I want to debate at the moment). 8" at 500yds translates to a diameter of 1.53 MOA, so I want to make sure I can hit within that circle 95 out of 100 times, and it would sure be nice if the ones that landed outside that ring didn't land too far outside it. This is equivalent to saying that if I were to shoot a whole bunch of 95 shot groups, I'd want the average group size to be 1.53 MOA or less.
So, how can I figure out if my rifle-ammo combo is capable of that, especially if I don't have easy access to a 500yd range and the cash to throw 100 test rounds down it? In other words, how do I know if I just need more practice, a new rifle, or simply a different ammo?
The traditional answer is to go shoot a handful of 3 shot groups at 100 yards and, if they're within 1.5 MOA, then you have a 1.5 MOA gun and any misses are due to not holding your mouth right. The problem is, this is
terrible logic and betrays an ignorance of how reality behaves. The situation is easy enough to understand: if you shoot 100 shots, and choose any 3 of them at random, the group size for the randomly chosen 3 would obviously be smaller than the size of the full 100 shot group. As it turns out, it's easy enough to calculate how much smaller a 3 shot sample would be on average, and real-life testing (such as the experiments described
here) bear it out: 3 shot groups are, on average,
roughly half the size of 100 shot groups.
So if I want to make sure I can hit a 1.53 MOA target with a high degree of confidence, my 3-shot groups are going to need to be
a lot smaller than that on average, and I'm going to need to shoot a lot of them to be sure. The situation improves a bit with 5 shot groups, but gets even worse with 2-shot groups.