The Success Equation: Separating Luck and Skill

IN the mid-1970s, a man hunted for a lottery ticket with the last two digits ending in 48 for a chance to win the Spanish National Lottery. He found a ticket, bought it, and won the lottery. When asked why he was so intent on finding that number, he replied, “I dreamed of the number 7 for seven straight nights. And 7 times 7 is 48.”

You can be wrong and still win—in the short term.

Some things are a matter of luck. Some things are a matter of skill. The problem is we have a hard time untangling the two.

In The Success Equation, Michael Mauboussin aims to helps us to understand the relative contributions of luck and skill and then how we can use that understanding to make better decisions.

Untangling luck and skill is made more difficult because “our minds have an amazing ability to create a narrative that explains the world around us, an ability that works particularly well when we already know the answer.” When we see the effect we want to find (or create) the cause.

Baloney-Generator

In the left hemisphere of our brain is what Steven Pinker calls the “baloney-generator.” “One of the left hemisphere’s main jobs,” writes Mauboussin, “is to make sense of the world by finding a cause for every effect, even if the cause is nonsensical.” Consequently, we attribute too much to skill, especially in hindsight. “Once something has occurred and we can put together a story to explain it, it starts to seem like the outcome was predestined.”

“We have a natural tendency to assume that success and failure as caused by skill on the one hand and a lack of skill on the other. But in activities where luck plays a role, such thinking is deeply misguided and leads to faulty conclusions.” He notes that luck can be overwhelmed by the influence of luck.

To understand the relative impact of luck and skill, it is helpful to place activities on a “luck-skill continuum.” Mauboussin shows you how. He also shows why in competitive situations, when you’re the favorite, “you want to simplify the game so that you can overwhelm your opponent. If you are the underdog, you want to inject luck by making the game more complex”—creating new points of competition.

In business, “challengers almost never succeed by taking on the established companies in their core markets. The larger companies are simply too strong and too motivated. But they are often too smug to admit that a small, upstart firm could pose a threat. And therein lies the advantage for the little guy.”

Building Skill and Improving Your Luck

Whether or not you can improve your skill depends a great deal on where your activity lies on the luck-skill continuum, says Mauboussin. “In cases where there is a clear relationship between cause and effect, and in activities that are stable and linear, deliberate practice is the only path to improvement. … For activities near the luck side of the continuum, a good process is the surest path to success in the long run.

Feedback is critical in any case. “Improving your skill means constantly looking for ways to change your behavior, either because what you’re doing is wrong or because there’s a slightly better way of doing it. … No matter what your profession or level of expertise, the chances are very good that accurate feedback can improve your performance.”

One final thought: Mauboussin presents what he calls the Paradox of Skill. “As skill improves, performance becomes more consistent, and therefore luck becomes more important.” If everyone is getting better, then luck plays a more important role in determining who wins.

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Posted by Michael McKinney at 11:05 AM
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