The Triumph of Mediocrity Ellenberg begins the chapter (titled The Triumph of Mediocrity) by recounting the work of a professor of statistics named Horace Secrist. After examining data on hundreds of businesses in the 1920s, Secrist wrote an influential paper with a rather startling conclusion: the competitive forces of American capitalism lead to mediocrity in business. Secrist’s evidence was that when businesses produced record-high profits one year, they tended to produce average profits in subsequent years. Likewise, firms that produced record-low profits tended to show higher profits in subsequent years. Therefore, something about capitalism must produce middle-of-the-road mediocrity, Secrist concluded.
But as Ellenberg explains, what Secrist’s data demonstrates isn’t an inherent flaw in competitive capitalism, but the simple fact that anomalies tend to be followed by a regression to the mean. A business can have a bang-up year for any number of reasons: a disaster that affects the competition, a temporary surge in demand, etc. When the temporary conditions that produced the record profits go away, so do the record profits. It’s business as usual again. That doesn’t mean the company’s management drifted into mediocrity.
https://www.fathead-movie.com/index.php/2015/08/06/mathematical-thinking-regression-to-the-mean/