Fooled by randomness

During the holidays, I took some time to pick up one of my favorite books: Thinking, Fast and Slow by Nobel Prize winner Daniel Kahneman (2002). It's a wonderful journey through the human mind and, the book spares no opportunity to show how often we fool ourselves in what we like to define as 'logic reasoning'.

Regression to the mean

At ESSET ENGAGE, we challenge tunnel visions and group thinking on a daily base as manager and policy makers, in their decision making mental process, sometimes prefer to follow gut feeling over objective signs. Why? Because these signs simply do not fit their agenda and so, they refuse to take them into account. The financial crisis in 2008 is not that long ago, the pandemic very recent to remind us about gut-over-brain decision taking.

One remarkable phenomenon, described in the book, is how we handle statistical evidence such as regression to the mean. In fact, we don't handle it at all as we are generally blind to the whole concept. The theory is rather straightforward: When the correlation between two scores is less than perfect, there will be regression to the mean. It was first described by Sir Francis Galton, a British mathematician in the 19th century. He measured heights of children and parents and, compared it with sizes of successive generations of seeds. He discovered that children as well as seeds did not tend to resemble their ancestors but instead, showed sizes statistically much more towards mediocrity (mean).

?Rien ne va plus

The enemy of regression to the mean is randomness. The first collision I had with the phenomenon was in the Estoril casino many years ago. I was granted a couple of chips by my company during a team event, and I approached a roulette table for the first time in my life. The first lesson I learned was that it's much easier to play with other people's money, the second was a ruthless stroke of randomness. I joined the table at an exciting moment, the digital scoreboard showed a history of 7 black numbers in a row. I noticed immediately that more gamblers approached the table. They began to bet on red. I couldn't resist and followed the flock. The logic was simple - right? - after a series of 7 blacks, a red will surely come. Nope, it didn't. Moreover, a series of 4 more blacks followed until the first red came on the board. At that time, I was already out of chips as so were many of my gambling colleagues.?

"Fooled by randomness," Nassim Nicholas Taleb would say.

The information presented on the board led to causation while randomness laughed us in the face. Roulettes don't follow any human logic, assuming they are not defrauded. There's no correlation whatsoever between the roulette's former swing and the next one. Even pro gamblers refuse to believe that. The scoreboard is there for a reason, namely offering total irrelevant information.

The Dutch Penalty Ghost

Unfortunately, humans remain naive to the thought when any opportunity of causation comes into play. Can you imagine what randomness does to football (soccer) when two teams must shoot penalties to win the championship? While football players prepare themselves for the ultimate chance of becoming the nation's hero, you will hear the TV commentators cooking up all kinds of stories on how this player failed 4 years ago in comparable circumstances, but how for sure he can complete a series of 15 successful penalties this season or any other b...s... totally irrelevant to the case.

There are no such things as comparable circumstances when shooting penalties. According Kahneman, the outcome of every penalty would depend on two simple elements: talent + luck and there's little correlation between the two.

?Down the line, Romelu Lukaku and I will have an equal chance to score (in one attempt). Surely, we can redefine 'talent' as the ability to shoot penalties combined with the ability of handling the pressure of the moment, and 'luck' when the goalkeeper chooses the wrong corner. In the nineties, the Dutch orange legion got all frantic over a Penalty Ghost haunting their team at every important championship with a pinnacle of 5 misfits during the semifinal against Italy at Euro2000… in their own country. Anyway, statistics would show that - all penalties considered - the scoring percentages will not differ that much across all teams, with or without the involvement of supernatural entities. When and where the ultimate score or miss happened, will stay in the mind of the supporters, offering new causation material for tomorrow.

Lukaku doesn’t need luck, he’s a professional

?Ergo, historical evidence will influence any forecast right before a penalty... and a reasonable explanation immediately after. Plain luck will be denied as a key factor in our logic reasoning and talent will be overrated. But in the end, randomness will decide over the championship, if we like it or not. In the coming autumn, I wish for the Belgian Red Devils to become the world champions after a 2-2 draw in extra time and a 5-3 penalty series against the (newly named) Mannschaft. Hell, we'll write the statistics on their naked butts! But for the rest of the world and in the light of the omni-present escalation, polarization and warfare we've seen the last months, I wish for all human beings ... regression to the mean.