Day 302: Recency Bias and the Silliness of Video Game Baseball Predictions

So I have this new baseball game I’ve been playing the last few weeks on my phone. Today, I was at the cafe playing the game as a break from writing, when I started paying attention to my own fascination with the video game players’ stats (As I have written before, I have always been fascinated by baseball stats). Specifically, I noticed that I was assessing the likelihood of a batter hitting a home run… based on their stats. As I was pitching to the computer’s team, I was deciding, “This player hasn’t hit any home runs… he’s not likely to hit it out of the park.” I did the same for my own players. I was making a prediction of how likely it would be for a player to get a home run.

Another way to put this is that I was looking at data from the past (because that is exactly what stats are) to predict the likelihood of a player hitting a home run. I realized I was doing this, and reminded myself that I did not actually know what would happen. Every new moment was as unpredictable as any other. Sure enough, right then one of my players (I’m glad to say) who hadn’t hit any home runs suddenly hit one out of the park. I laughed out loud triumphantly, and then reminded myself, “Past performance is not an indicator of future results!”

In case you are not familiar with it, this statement is a commonly used in the investing world. Financial products tend to have this somewhere in their fine print as disclaimer to remind us that, though their product might have succeeded in the last one-, five-, ten-, or twenty-years (etc), there is no guarantee what will actually happen in the future.

It is also one of the underlying assumptions behind index fund investing. Index fund investing works well for people who are skeptical of their own ability to predict what will happen next in the stock market (that should be almost everyone, unless you are one of the financial “Unicorns” of the world, aka Warren Buffet). It seeks to take the guess work out of investing by saying, “You don’t have to predict the future performance of a particular stock. Just buy the whole market, then you will get to enjoy the overall wins!”

The index investing strategy can counteract a common human weakness called “recency bias.” Recency bias is the tendency of us humans to make predictions about what will happen based on what has recently happened.

Are you getting the connection here? It’s exactly what I was doing in my video game: looking at my players’ stats, which are merely a record of recent performance, and making predictions about what will happen next. Of course, I do not really know, but I have a tendency to make predictions anyway!

Silly me. I’m just a human, after all.

Fortunately, I am a human who is willing to analyze some of his tendencies and not take them too seriously. Also, I am embracing the wisdom of uncertainty, which is just as true in baseball as it is in investing or the rest of life!

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