Law of Averages,Regression to the Mean and the Walk down the Dalal Street!

 Sir Francis Galton, a British polymath, did pioneering work on Regression or Reversion to the Mean in Statistical Research in the late 19th Century. According to his analysis of human characteristics, he applied statistical methods to the study of human differences and inheritance of intelligence and pioneered the work on Eugenics. He also contributed to the field of psychology by founding psychometrics with personality mapping.

He was a versatile genius and being the half-cousin to Charles Darwin, his works in many ways drew sufficient inspiration from Darwin's studies. But his most outstanding contribution is Regression to the Mean in Statistical analysis. He is also considered to have developed a central limit theorem showing that with sufficient sample size the binomial distribution approximates a Normal Distribution and the practical demonstration of it is called Galton Board or Quincunx or Bean machine

Regression to the Mean is in simple terms that if there is volatility observed over the mean, over a while the values will show Regression to the Mean/Average and Francis Galton termed it as Regression to the Mediocrity in terms of inherited human characteristics. This led to modern statistical modeling based on linear regression analysis.

Regression to the Mean is also important to understand the stock market behaviour. Stock market behaviour is considered to be a Random walk and the financial world which considers a normal world will always look for stable returns. Jeremy Siegel said that "return to the mean" may show that returns may be unstable in the short term but stable in the long run. In such a situation the returns can be easily quantified and not a Random walk. But the stock market exhibits typical Random Walk characteristics. A Random Walk is one in which future steps or directions cannot be predicted based on past actions or performance. But Dalal street would hate to call its three-piece suit executives , who carry an air of super cat financial strategists,  as "Random Walkers"!!(link). The central hypothesis of Random walk is that one cannot consistently outperform the market averages. In other words, even the best of financial strategies would eventually start regressing to the mean.

The law of averages which is a law of large numbers gives false belief and therefore it is called "Gamblers' fallacy". It leads to the misconception that the probability of an outcome occurs with a small number of consecutive experiments so they will have to "average out" sooner rather than later. This is the fallacy that rules the mind of every gambler and that is why it is called "gambler's fallacy". Stock market ups and downs can also lead to this kind of fallacy in the short term.

Dalal Street is a minefield for the uninitiated and a good playground for those who have an appetite for a long walk or for those lethargists who buy indexed bonds, sleepover them and don't go for a walk!!

We are born without locks!

Whenever any discussion happens on the human mental states, usually the discussion starts with Sigmund Freud. His Id, Ego and Alterego interpretations of the human mind in both conscious and subconscious levels have been the subject matter of debate throughout the world.

If you construct a matrix grid with Child, Parent and Adult ego states of Eric Berne's Transactional Analysis of social behaviours exhibited by human beings,  blended with Freud's human personality types of psycho analysis , then the two-axis grid will present what Eric Berne envisaged.

However, I went one step further and tried to blend the basic gunas as outlined by the Indian philosophy of yonder: Sattva, Rajas and Tamas. The complex matrix will be like the above.

According to me the middle axis of a combination of Ego, Parent and Rajas will give a stability to the human life and existence through the ages. It is Sattva which will primarily drive the Adult behaviour and bear on the Alterego for the soul's evolution to a higher plane of existence. Only a very few would be able to reach that level of discipline and yearning it demands.

Some of you may wonder why I titled this piece "we are born without locks!".

One young man met a yogi and asked him, if God had willed that everybody should be disciplined and strict then he could have given us locks for our senses and so since He has not sent us with locks, He wants us to remain free and enjoy the life as per our wishes. Yogi with a smile replied saying that He has set us free with a free Will trusting us against misuse and abuse.! that is the beauty of the whole game.

We create our own game and our own rules, and we are allowed to play with all our senses in our command. We are free to choose our methods, ways of creating excitement, enjoyment and merrimaking to our hearts' contentment. But your methods and ways pave way for your own future to unfold for you. Your means justify the ends. If You tread on others' toes to play this game, you may invite somebody to tread on your toes as a reaction and the game continues that way.You let others play and enjoy the game with you, somebody will also allow you to play and enjoy. So, this way the game goes on and on and on.

It is all about how you try to improve your fair play in the game. When your Sattivic nature gains upper hand , you are out of the line of Ego taking over and you are constantly trying to up your fairplay. Yogis play it the minimalist way.

It is all without locks and keys!!All in the game!

Progressive Compromises....!

The great Tamil writer  சுஜாதா(Sujatha) once wrote that our lives are one of Progressive Compromises of unfulfilled wishes and wants.

When we are born, Sigmund Freud said ,that we are born with Id, Ego and Alterego-the three states of our subconscious existence and the interplay between these three manifests in our personality and reflect in our behavioural traits.

Eric Berne wrote a famous book "Games People Play:The Psychology of Human Relationships" where he described how Child,Adult and Parent ego states play and he described it in terms Transactional Analysis for interpreting all the social interactions.He also went on to say that people also play mind games with hidden motives,desires etc. and described such negative behaviours in terms of the ego states dominating the individuals.

For solving the life's problems Thomas Harris wrote a practical guide "I'm Ok, You are OK" by doing  the Transactional Analysis of the behavioural pattern of individuals.This is based on the Johari Window concept developed by Joseph Luft and Harrington Ingham where the four  quadrants are fit in the understanding of the relationship with themselves and with others:" I'm not Ok, you are not OK', I'm not ok,you are OK", "I'm OK, you are not OK", "I'm OK, You are OK".

So all these stalwarts have explained what is happening in our daily interactions but none of them have looked at what it means to individuals in the long term for themselves or for the society at large.

However, even if somebody is in the quadrant of I'm OK, You are OK, with the right blend of Adult, Parent and Child egos , then with aging there can be "progressive compromises" and that is what writer Sujatha alludes to.

He goes on to explain that in his twenties he wanted to play guitar and buy a piece of Moon. But over a period of time his ambitions mellowed down and finally when he reached the 70s in age , even passing urine daily morning without any complication,according to him, became an achievement in one's life. May sound funny but it outlines a question as to what is the purpose of one's life. is it only Progressive Compromises or something more? We can feel within ourselves that there can be or should be something more to life.

Many philosophers have pondered over this question and in India all the Masters and Spiritual Gurus have categorically told that the surrendering of the self to Bhagawan is the ultimate purpose of life. But the means advocated is like what 15th century Gujarati poet Narsinh Mehta sung:" vaiṣṇava jana to tene kahiye 
                                                                                                 je pīḍa parāyī jāṇe re,"

                                                                                          (Call those people Vaishnav who
                                                                                                 Feel the pain of others,)

So helping those in pain and misery is the means by which one surrenders himself  to Bhagawan.

Is there any better way of explaining the purpose of Life!!May be, but in all humility, I want to say ,I don't know.