Reversion to the Mean

Reversion to the mean (also known as regression to the mean) is a mental model that is seen a lot throughout life.

The definition of reversion is to return to a previous state and the definition of mean is the average. So reversion to the mean is the idea that outcomes will get closer to the mean as they increase.

Reversion to the mean happens in lots of areas of life such as investing, sports, insurance, weather patterns, business, height of people in a room, and many others.

If 2 people in a room are 7 feet tall and the average height in the world is 5'6" then as more people enter the room these new people will bring the average height down and make it closer to the world average of 5'6".

Reversion to the mean shows up a lot in areas where numbers are involved therefore this mental model will show up in sports a lot because numbers and statistics are heavily involved with sports. In baseball, it is typical that some players can start the season batting above .500 after the first 2 games but as they play more games and get more at bats, their batting average decreases closer to .300.

Reversion to the mean is also typical in gambling. A gambler who wins a lot in the casino at the beginning will most surely give up those winnings back to the casino the more he plays. The casino set it up this way.

If you've read my mental model post on the law of large numbers than you will see that there are a lot of similarities in the law of large numbers and reversion to the mean and that's because they are very similar indeed.

The law of large numbers states that the more and more you increase the number of outcomes in a given event, the more likely the outcome will approach whatever the average is.

The reason reversion to the mean and the law of large numbers work is because of mathematics. That is how the math and statistics work. Below is a normal distribution curve which shows how often an experiment will produce a particular result.

The highest part of the curve is in the middle which is where the average is because that is mostly how the world and mathematics work. Outcomes in life tend to cluster around an average as they increase.

Source: HowMed.net