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Recent research published in the British magazine New Scientist sheds some light on the old saying about lost people walking in circles. During the land navigation courses I teach, the introductory session is about navigating without any aids like map, compass, or GPS. I usually include a demonstration in which a volunteer walks in a simulated fog or whiteout by placing a white pillowcase over her/his head. We use a large field or empty parking lot, walk the volunteer around a bit with a number of turns so that they do not just remember what the area looked like befor putting the pillow case on. Later in the course, there is a section in ways to navigate in low visibility conditions.
The answer is that people do indeed walk in circles if there is a lack of landmarks. "Circles" makes it sound like it is a regular pattern, but, as the demo I use in the land-nav courses shows, it is actually a somewhat irregular pattern that sometimes involves fairly sharp turns and sometimes larger excursions that cross back on an earlier part of the path. There is less problem if prominent landmarks or if the sun or moon are visible. I have commented here on Trailspace before about my experiences in the Arctic and Antarctic. Being used to wandering the wilderness at mid-latitudes where the sun rises more or less in the east and sets more or less in the west (with seasonal variations, of course), my first experience in the Arctic summer where the sun doesn't set, but just moves clockwise around the sky was a bit unnerving (I quickly went to a heavy reliance on significant landmarks). When I went to Antarctica, I had to adjust to the sun moving counterclockwise around the sky instead of clockwise during the Antarctic summer.
I do a lot of competitive orienteering on advanced courses where you are off-trail much of the time. Occasionally I make the mistake of trying to go directly through "fight" (vegetation that is dense enough to have to fight your way through, shown on the orienteering maps as dark green). Even with map and compass in hand, it is easy to go in "circles" as you try to work your way through the few open paths (which may be game trails for animals going somewhere other than on the orienteering course). The problem is low visibility and inability to see significant landmarks to stay oriented. For inexperienced people, even hiking through fairly open woods requires walking around trees and bushes, which makes it easy to lose track of just how far off the straight line you have deviated and how much you need to turn back to get on course. Traversing slopes or going up or downhill compounds the difficulty of staying on course. For this reason, most orienteers deliberately steer off to the right or left (remember which way! it's called "aiming off") to hit a linear feature (stream, trail, fence line, ...) so that when you hit that linear feature on which the control is located, you know which way to turn to get to the control.
There are other ways to help stay oriented even without navigational aids. The researchers who did the New Scientist article are looking into the actual reasons people wander. Contrary to some suggestions, it has little if anything to do with right-handedness or left-handedness. Both righties and lefties wander both left and right, and change their wander direction randomly both ways.
One of the hopes had been to improve predictions of where lost people go to help S&R operations.