The Law and Flaw of Averages

The law of averages is a principle that supposes most future events are likely to balance any past deviation from a presumed average.

Take, for example, flipping a coin. Should you get 5 "Heads" in a row, you'll assume the next one must be "Tails" despite the fact that each flip has a 50/50 chance of landing on either. 

Even from this example, you can tell it's a flawed law. While there are reasonable mathematical uses of this law, in everyday life, this "law" mostly represents wishful thinking. 

It's also one of the most common fallacies seen in gamblers and traders. 

Perhaps you heard the story about how the U.S. Air Force discovered the 'flaw' of averages by creating cockpits based on very complex mathematics surrounding the average height, width, arm length, etc. of over 4,000 pilots. Despite engineering the cockpit to precise specifications, pilots crashed their planes on a too regular basis. 

The reason?  With the benefit of hindsight, they learned that very few of those 4,000 pilots were actually "average". Ultimately, the Air Force re-engineered the cockpit and fixed the problem. 

It's a good reminder that 'facts' can lie, and assumptions and interpretations are dangerous. It's why I prefer taking decisive action on something known, rather than taking tentative actions about something guessed. 

 

via ReasonTV