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Random Walks

·3 mins

Life is a series of random walks. Even if you walk the same path every day (in the literal sense), your individual steps on every walk you take are essentially random, and for the most part you aren’t even conscious of them because this is handled by muscle memory.

When I say the steps are random, what I mean is that if you could precisely measure every step you take, where your foot lands, how much force you apply with your individual muscles to all the components of your leg and foot and torso and so on, the data would appear to match a pattern from a statistically perspective, but each individual step would have a normal random distribution.

I will confess, I spend too much time paying attention to stock market gyrations. Most of the day to day ups and downs are random, and this has been demonstrated by a bunch of people much smarter than me. Of course, if you pay too much attention to “the news”, you’ll start to believe that there’s always a cause or reason for why the stocks go up or down, but in reality the system is too complex to really say one way or another.

It’s true that over longer time horizons (i.e., months and years) you can reasonably establish causal relationships, but certainly at the micro level (i.e., daily moves) what markets do is mostly random.

A random walk
Do you see a pattern? You shouldn't because it's a random walk, from Wikipedia.

It’s helpful to think about this sometimes: you don’t always need to find an explanation for everything. Humans are special in that our brains are pattern matching algos on hyperdrive at all times, except perhaps while we sleep. We’re always looking for symbolism, higher meaning, yadda yadda, but most of the time our daily events are quite random outside of ordinary routines.

For example, if I’m on a morning walk and a neighbour who’s usually friendly and says “hi!” when they pass snubs me, I could either take offense to it, or realize that maybe they’re preoccupied with something else in their life at the moment. I likely don’t matter enough in their lives for them to go out of their way to be rude to me, which is liberating.

It’s easy to get annoyed about interactions like this: maybe the barista made a mistake with your coffee order, or perhaps a package you ordered didn’t arrive on time. We tend to let these random things annoy us when they aren’t worth our own time, to be frank.

A lot of random data is, I suspect, just a Rorschach test, and we tend to see what we want to see. Market’s up today? Must be the great news about <thing>! Market down today? Must be because <compnay> had a bad earnings report! Maybe it is, but you can’t prove it, and there might be some truth to such movements but it’s still mostly random.

You should just assume there’s a bit of randomness in everything, and when something doesn’t happen the way you expect, or you can’t figure out why a thing happened the way it happened, you may have just been tricked by randomness.