Clustering Illusion
Seeing patterns and streaks in random sequences — hot hands, lucky runs, 'trends' in noise — and acting on them; the famous 'hot hand fallacy' was itself overstated, which shows how hard this is even for statisticians.
An everyday example
Doubling a marketing budget after three good weeks that are within normal variance.
What it can cost you
Betting on patterns that are noise; being shown a 'trend' that is three points.
Warning signs
- Three points and I see a line.
- I am acting on a run.
One thing to do
Ask how many observations there are and what the normal range is before calling anything a trend.
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