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Extreme outcomes tend to move back toward the average over time.
Mean Reversion isn't just theory—it's a practical framework for better decisions. This page explains how it works and how to apply it.
After exceptional performance (good or bad), expect a return to normal. Don't overreact.
The power of Mean Reversion comes from its ability to compress complexity. A good mental model acts like a lens—it brings the important features into focus.
A stock that doubled may come back down; a terrible month is often followed by an average one.
Apply Mean Reversion when you need to explain your reasoning to others. The framework creates shared language for discussing strategy.
Over-applying: Not every problem benefits from this model. Match the tool to the situation.
Under-applying: People learn the model but don't practice it. Application takes repetition.
Misunderstanding the principle: Surface-level understanding leads to poor execution. Study the examples.
Ignoring context: The same model works differently in different domains. Adapt accordingly.
Identify a current decision you're facing. Write down the assumptions you're making. Challenge each one.
Look at a past failure. Apply Mean Reversion retroactively—would it have changed the outcome?
Teach the model to someone else. If you can't explain it simply, you don't understand it well enough.
Set a reminder to apply this model once per week for the next month. Track the results.
The best thinkers have internalized multiple mental models and apply them fluidly based on context.
Mental models require specific cognitive traits to execute. Do you have the Emotional Health for this?
Extreme outcomes tend to move back toward the average over time.
After exceptional performance (good or bad), expect a return to normal. Don't overreact.
A stock that doubled may come back down; a terrible month is often followed by an average one.
Use Mean Reversion when facing complex decisions in the reasoning domain, when conventional approaches aren't working, or when you need a structured framework for analysis.
Mean Reversion is used by strategic thinkers, business leaders, and anyone who needs to make high-stakes decisions under uncertainty. It's particularly popular in investing, startups, and engineering.
Yes. Mental models are learnable skills, not innate talents. The key is deliberate practice—actively applying the model to real decisions, not just reading about it.