Hot air and cool air have different indexes of refraction, which is a way of measuring how much light is bent when passing through a given substance. The air above a fire is a roiling, chaotic mess of little pockets of air at different temperatures. The light passing through this chaotic space is moving from cooler air to warmer and back many times, and a shimmering effect occurs. The light is being bent and straightened over and over, in many different places over the fire at once. Differences in air temperature are what cause this effect.
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