Mean Reversion

 

When British biologist Francis Galton was young, he was very interested in “ like a father like a son”, he spent a lot of time studying two issues:

If parents are taller or shorter, will the next generation do the same?

If parents achieve high success, can their children replicate the success?

With the development of modern science, people are no longer satisfied with the conclusions drawn by predecessors but analyze whether the conclusions are true or not from the perspective of statistics. Just like Galileo climbed to the leaning tower of Pisa with two iron balls, and then threw them down to verify whether Aristotle’s conclusion was correct.

According to Francis Galton’s research, compared with the previous generation, the height and achievements of the next generation have a trend of Mean Reversion.

That is to say, parents are very tall, and children will probably shift to a normal state. They will be taller than normal people, but not as much taller than others as parents, and grandchildren will further shift to normal values.

The personal achievement also shows this trend. Parents get high achievement, the probability of children getting the high achievement is 36%, and that of grandchildren is 9%. They have a higher probability of having high achievement children than ordinary families, but they also show the characteristics of Mean Reversion.

People involved in stock trading should see that this feature is very close to the value curve of the stock, because the stock price fluctuates around the main line for a long time, and the line is the value of the stock.

Many people will question this theory. Why do the rich have obvious characteristics of family and inheritance? Why are these families still at the top of society after hundreds of years? Why didn’t they have the phenomenon of Mean Reversion?

Man’s attack power is weak in mammals, but after he invented and used tools, he was able to kill tigers, catch sharks and launch rockets into space.

If we extend this logic to other fields, we will find that there are cases against the laws of nature everywhere in reality.

For example, the possibility of the natural inheritance of the rich class shows a downward trend. If you are an accomplished parent, you know that the next generation and the next next generation will become more and more mediocre. Will you do something to actively interfere with the law to play its role?

European and American giants have long discovered that it was easy for future generations to have dandies and playboys, but smart parents usually “donate” their wealth in the form of “charity”, and the wealth goes to their trust funds.

Some giants adopt the way of having more children to fight against the laws of nature. Have more children, choose the best offspring for the strictest education, then choose the strongest child to be the successor through competition. If there are no offspring, it means that the family is going to die. For example, in the mighty Medici Family, no children in the later period led to the extinction of the family to flow down.

Almost all family trusts have a basic clause, that is, future generations are not allowed to interfere with the trust operation, to prevent the black sheep from squandering. The money focuses on the elite members of the family, and the rest of the money enables them to lead a normal life. This wealth is managed by professional managers. Although future generations may have black sheep, the professional managers who manage the trust can be selected.

Some families donate money to famous universities in the world so that universities can reserve a position for their children in the future. After all, studying and living in a famous school environment will be much better than in other places.

Yes, high-end people who deviate from the benchmark always have to return to normal values. Why is the return of the descendants of the rich class not obvious? It is because they are playing “Props”. People who play games have this kind of experience, when you need to enhance a certain advantage, you can do it by purchasing it.

The vast majority of people in this world are ordinary people, and the next generation of those who are not ordinary will return to ordinary people. If the return is not obvious, it is because their parents recharged them by buying “Props”.