EP143 – Beyond the Gambler’s Fallacy- Focusing on What Matters

Beat the Gambler’s Fallacy! Life’s too short to worry about uncontrollable things. Use probability to your advantage. #AdvancedQualityPrograms #TheQualityGuy #CircleOfControl

“Do you want to beat the Gambler’s Fallacy? As Ayrton Senna said, ‘When you’re not happy, you need to be strong to change, resisting the temptation of turning back. The weak go nowhere.’”

The Law of Averages

The law of averages is a belief that a specific event will occur at a rate that is similar to its probability over time. This can be seen more as a practical observation and misunderstanding of probability, rather than a real law, depending on the context. For instance, if a coin lands on heads three times in a row, some might wrongly believe that the next flip is almost certain to be tails. But in reality, every flip is independent of the previous one. This is known as the gambler’s fallacy.

In everyday situations, this idea often reflects more wishful thinking and a misunderstanding of statistics rather than any mathematical principle. While there is a formula where a random event will reflect its inherent probability over a large number of trials, the law of averages wrongly assumes that some “balance” is necessary. Most applications of this idea incorrectly assume that there is no bias in the probability distribution, which often contradicts what happens in the real world.

The Gambler’s Fallacy

The gambler’s fallacy is a common misuse of the law of averages. Gamblers who believe that an event is more likely to happen because it hasn’t happened recently, or less likely to happen because it just occurred, are falling prey to the gambler’s fallacy.

For example, imagine a roulette wheel landing on red three times in a row. A gambler might wrongly think that the law of averages predicts that the next spin is almost certain to land on black to find some balance. However, the wheel doesn’t “remember” past results, so the probability of landing on black remains the same as in previous times, no more than 48.6%, because it is independent of the previous trials. That’s the reason why no statistical formula can predict lottery numbers that haven’t been drawn recently are due to appear soon.

Applying This to Our Lives and Professional Development

People tend to believe that on average, our results will balance out over time when we make an error. Instead of working on resolving the source of the error, they expect it to disappear over time. Instead of focusing on what we can control, which is understanding the error and creating solutions, we focus on things that seem big but are out of our control. This focus, however, will never yield any impact on our results. So, it is better to take charge of what’s within our grasp and release our efforts from what’s beyond our reach. This is the essence of the Three Circles of Influence Model.

Every day, our minds generate between 12,000 and 60,000 thoughts. Surprisingly, according to the National Science Foundation (NSF), 80% of these thoughts are impractical and, for that reason, detrimental to our best interests. But why is this the case? The answer lies in our tendency to worry about things that we cannot control.

This is a habit that most of us have developed: worrying unnecessarily over things beyond our control, such as market developments impacting our sales or world news. This leads to unnecessary overthinking, resulting in heightened anxiety and diminished productivity under the guise of focusing on the “big picture”. However, we ultimately know this won’t really have a real impact on our day-to-day results. There’s a way to combat this situation, and it’s by focusing on the Three Circles of Influence. This model helps us understand what’s within our control.

The model is divided into three fundamental areas:

The Circle of Concern: This circle encompasses factors that are entirely beyond your control. For instance, the weather, the news, and the past are things you cannot change. The best course of action is to let go of anything in this circle, as it will not serve you.

The Circle of Influence: This circle contains factors that you can influence. Your friends, your family, and your reputation fall into this category. You should focus your efforts on these factors, as you can influence them the most.

The Circle of Control: This circle includes factors that are completely within your control. Your thoughts, your actions, and your reactions are all things you can directly control. Therefore, you should spend your energy and time improving these aspects.

Life is too short to worry about things that are out of our control. By studying and applying this model, you can ease your mind and lead a more productive and fulfilling life.

“If you no longer go for a gap that exists, you are no longer a racing driver.” ~ Ayrton Senna