How randomness rules our lives

There is a famous saying that has great inspiration: “Everything happens for a reason”. As a logical creature, we, human, always try to find the causes of everything that happens in our daily lives. We try to understand, explain the universe, and through doing this, we can control our lives. When a big event happens, we all think of its consequence-to-be. We try to connect event A to the event B. We blame stock market downturn on Saddam Hussein’s arrest though he had nothing to do with the prices of IBM or AIG’s securities. We try to define success, failure with our own explanation. What we fail to realize is that most of the events happening to us every day is just random.

In a gathering after seminar I attended last March, a friend asked me whether I knew Warren Buffet. “Yes. Of course I know him. What’s the matter?”. He said that Warren Buffet succeeded as a stock traded because when his stock went down, he kept holding it till it rose again. Then he concluded that stock investment should be a long-term game, and that we should not sell our stock too early. It was kind of making sense. “But what if his stock kept falling down, he decided to sell it and reinvest into another stock and made a big profit? Does your lesson still hold true?” We cannot deny that Warren Buffet was a genius in stock investment. And neither can we ignore the fact that luck played a big role in his success. Unless you have some asymmetric information, randomness controls your fate in stock trading. It is no different from gambling. In thousands of gamblers, there must be a big winner. However, that does not mean that big winner must be a master of gambling or he is going to win more next time. And it also does not mean that the losers are always losers. When the next wheel runs, the chance of success of everyone is once again equal.

If you ever watch football or any sport, you may realize a strange phenomenon that the results of your favorite team or athlete is not stable. Sometimes, they have a very big win. But the next game they bow to a weaker team. We try to explain that. When the team wins, we say that it results from the correct tactic and hard-working training. When the team loses, it must be a bad day or the referee does not do his job in an appropriate way. However, if we can look father than just one game or two, we may notice that the result of our favorite team does not fluctuate much throughout seasons. Last season we might many big wins and lose. This season witnesses many draws. But both seasons turns out to have a similar final result. And that result is called mean. It is the average ability of our team in a normal condition and without many big changes. Our result musts fluctuate around that mean. If this time we have a big win which means that the result goes far over the mean, do not be surprised that in the next time we have a high chance to be beaten hard, so that after all, the average result would be the mean. Such phenomenon is called regression to the mean.

Many psychologists agree that compliment has a better influence on employees than complain. But it is not widely accepted among employers due to their own experience. They noticed that when an employee worked well, they gave him a compliment and the next time he would have a worse result. Vice versa, after receiving a complain from the boss, the employee tends to have a better achievement than his previous one. It is indeed true. However, it has nothing to do with the compliment or complain. It is just, once again, regression to the mean of the employee’s work. It does not matter whether the employee gets a compliment or not, next time he tends to have a worse result which can be his average result or lower. The same phenomenon applies to giving complain as well. Therefore, the next time your teammate fail to do his job, remember that giving complain only makes the situation worse. And in most cases, compliment does more good than harm.

“To be king is tough, to stay king is tougher”. That saying may and have concluded one simple rule that we often forget in our lives: “most of the events happening to us every day is just random”.

Good night, and good luck.

Kz.