Regression To The Mean Flashcards, test questions and answers

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What is Regression To The Mean?

Regression to the mean is a phenomenon that occurs when a random variable is extreme on its first measurement, but will tend to be closer to the average of the population on its second measurement. This statistical concept can be applied in many different areas, from physical sciences and economics to psychological research. In essence, regression to the mean suggests that an observed extreme event or outcome is likely due more to chance than any underlying cause. In physics for example, it may explain why experiments rarely replicate their results exactly; even if conditions are kept identical between tests, small variations in factors such as temperature or air pressure can skew results slightly away from expectations. Similarly in psychology research studies, where participants are tested over multiple trials using different variables and measurements each time; scores on later trials are often seen to regress back towards their original baseline values. This supports the notion that previously observed extremes were more likely due to random variation rather than any specific factor being studied.In economics too, this concept helps explain how markets with high volatility often return back towards equilibrium after some time. For instance if there’s an unexpected surge in demand for a particular product leading prices of related stocks suddenly skyrocketing; these prices typically settle down somewhere closer to what they originally were before the spike occurred -regressing back towards their mean value- as new information about market forces becomes available and influences traders’ decisions accordingly. Overall, regression to the mean is an essential concept within statistics which helps us understand why outliers occur and why we should not always expect them or similar events/outcomes again upon repeating our experiment/research study/etc.