How not to be tricked by the inevitable return to average

Why Extreme Highs and Lows Rarely Last—and How to Make Smarter Decisions

“What Were the Chances of That Happening?”

“100%,” replied the second friend. “Clearly, it just happened.”

We often marvel at unexpected events, but most of the time, the average wins—that’s why it’s called the average. This principle is a core lesson in life and decision-making, known as Regression to the Mean.

Can you think of a good example of this?

Understanding Regression to the Mean

Regression to the Mean is a statistical concept that explains how extreme outcomes—good or bad—tend to move closer to the average over time.

But, if something deviates significantly from its typical performance, it will likely return to its long-term average.

This principle applies across multiple domains:

• Investing & Finance: A stock that experiences an unusually high or low return in a given period is likely to revert to its historical average.

• Performance & Talent: An athlete with an exceptional (or terrible) season will likely perform closer to their career average in the next one.

• Business & Sales: A company experiencing a sudden spike (or drop) in revenue due to external factors will often return to its typical performance over time.

• Health & Well-being: A person facing an extreme health condition may recover toward their baseline, mainly if temporary factors influence the initial event.

How to Use Regression to the Mean in Decision-Making

Since this principle functions like a natural law—akin to gravity—it’s essential to recognize its influence when making decisions. Here are four strategies to apply:

1. Avoid Overreacting to Extremes

If you experience exceptional success or failure, acknowledge that it may be temporary and plan accordingly.

✅ Example: If a stock skyrockets, don’t assume it will keep rising indefinitely. Consider that it may revert to historical performance levels.

2. Recognize When Luck Plays a Role

Some outcomes are driven by randomness rather than skill or effort.

✅ Example: A company winning an industry award doesn’t mean it will dominate the market—it could be a lucky break rather than a sign of long-term superiority.

3. Don’t Overestimate the Impact of Short-Term Results

Be cautious when making decisions based on extreme recent events.

✅ Example: A sudden drop in sales might not indicate a failing business—it could just be a temporary dip.

4. Plan for the Long Term

Instead of chasing outliers, make decisions based on long-term trends.

✅ Example: If you’re hiring, don’t assume a candidate who performed exceptionally well in one interview will always be that strong—evaluate their overall track record.

You May Know Better—Or You May Not

Regression to the Mean reminds us that extremes rarely last, whether in business, investing, or life. The key to better decision-making is not to overreact to short-term fluctuations but to recognize patterns and base choices on long-term averages.

So the next time you think you’re witnessing an outlier, it might just be about to regress to the mean—or maybe it won’t. That might be a story you’re telling yourself.