Chapter 10

Peapods and Perils

Regression to the mean provides many decision-making systems with their philosophical underpinnings. And for good reason. There are few occasions in life when the large are likely to become infinitely large or when the small are likely to become infinitely small. Trees never reach the sky. When we are tempted—as we so often are—to extrapolate past trends into the future, we should remember Galton’s peapods.

Yet if regression to the mean follows such a constant pattern, why is forecasting such a frustrating activity? Why can’t we all be as prescient as Joseph in his dealings with Pharaoh? The simplest answer is that the forces at work in nature are not the same as the forces at work in the human psyche. The accuracy of most forecasts depends on decisions being made by people rather than by Mother Nature. Mother Nature, with all her vagaries, is a lot more dependable than a group of human beings trying to make up their minds about something.

There are three reasons why regression to the mean can be such a frustrating guide to decision-making. First, it sometimes proceeds at so slow a pace that a shock will disrupt the process. Second, the regression may be so strong that matters do not come to rest once they reach the mean. Rather, they fluctuate around the mean, with repeated, irregular deviations on either side. Finally, the mean itself may be unstable, so that yesterday’s normality may be supplanted today by a new normality that we know nothing about. ...

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