APPENDIX
TWO METHODS FOR CALCULATING THE AMOUNT OF REVERSION TO THE MEAN
Method 1

This method comes from Tom Tango (applied to Major League Baseball, 2011):

  1. Calculate the standard deviation (observed) of winning percentage for all teams:

     

    Standard deviation (observed) = 0.070524
  2. Calculate the standard deviation of luck (p = .500 and n = 162):

     

    image
  3. Calculate the variance for observed winning percentage and for luck winning percentage:

     

    Variance (observed) = Standard deviation (observed)2 = 0.004974

     

    Variance (luck) = Standard deviation (luck)2 = 0.001543
  4. Calculate the variance of skill:

     

    Variance (observed) = variance (skill) + variance (luck) ...

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