Investment strategist Michael Mauboussin’s newest book, The Success Equation: : Untangling Skill and Luck in Business, Sports and Investing, makes for some fascinating reading. Borrowing from the work done by Nobel Laureate Daniel Kahneman (read his Thinking, Fast and Slow) and Nassim Taleb (Fooled by Randomness and Black Swan), the author explains that what seems like a lucky win may have more to do with skill, and what seems like superior skill may actually be helped by a spot of luck. The book is full of interesting research nuggets on sports forecasting and refers to Michael Lewis’ Moneyball.
Did you know that an average fastball (in baseball) reaches the batter in 400 milliseconds; the batter takes at least 100 milliseconds to react to the ball; and the hitter takes 175 milliseconds in his swing? The time left to decide is a humongous 50 milliseconds! Mauboussin also refers to the dilemmas in business and the complex process of shepherding innovation — Clayton Christensen of The Innovator’s Dilemma comes up in several references.
In fact, The Success Equation takes forward the argument he presented in his earlier book, Think Twice: Harnessing the Power of Counterintuition, in which he explored the idea of how often we are wrong about the way we think, and the actions that result from it. Mauboussin argued convincingly that, no matter how smart we think we are, we often take poor decisions as we are guided by our mental faculties, which fail to see things the way they are. The way out of that trap is to ‘think twice’, the premise of the title. Briefly: prepare mentally, recognise mistakes, and apply mental tools to cope with the realities of life. His advice is that we should keep our intuition in check even if it feels counter-intuitive.
If that isn’t persuasive enough, Mauboussin’s book features data from the world of American sports. There’s a lot of baseball statistics in this book; it makes me wonder if someone will come up with something like this from the IPL data in India some day. Essentially, it’s an engagingly presented argument: success is never about just skill or luck.
Mauboussin has chosen a rather simplistic, single dimensional scale (skill-luck), but it’s quite useful for demonstrating the richly presented concepts of the book. So, does the author offer any simple prescriptions in his latest offering? The last chapter offers ten suggestions to improve the art of good guesswork. The first of them is to ‘Understand where you are on the luck-skill continuum’; the final is almost philosophical: ‘Know your limitations’.
Note, this isn’t your average self-help book, ideal for the cab ride from the Bengaluru airport to your MG Road office. It does not give simple self-help rules or preach. But it shows, with details, why a game of skill is a game of chance, and what may be a game of chance may be a lot more skill-driven. Reading this book may lead you to read some of the other books to which Mauboussin refers frequently. The wonderful world of behavioural economics beckons. Sure, it will definitely help you take better business decisions…or at least figure out why you take such lousy ones.