Success in life is a combination of luck and skill, but it’s tough to figure out when one plays a bigger role. Michael Mauboussin’s The Success Equation unravels the two so we can make better decisions in a complex world. Here are my main takeaways of the book:
The paradox of skill is that greater competition increases the importance of luck. People get better at doing something, performance becomes more consistent, and luck gains importance as the difference shrinks between top performers.
We draw lessons from the past but some things happened simply due to chance. The need to connect cause and effect is ingrained in our minds and we tend to forget about luck once we know how things turned out.
Know how to determine the relative influence of luck and skill. History is a useful teacher in activities less determined by luck, but a lottery winner is not a skilled ticket picker. The easiest way to test if an activity is skillful is asking “can you lose on purpose?”
Being rational is different than being intelligent. Smart people can make dumb decisions. A rational person controls their emotions, knows how to prioritize goals, and reflects on what’s worked and what hasn’t.
Process trumps outcomes in fields influenced by randomness like investing. Looking at short-term results is an ineffective way to evaluate an investment manager. Investors are more sophisticated, information is instantly available, and short-term returns are more related to luck than skill. Analyzing a manager’s process is a more robust way to judge their strategy.
Short checklists and quality feedback are effective ways to improve a skill. Peter Pronovost, an anesthesiologist at Johns Hopkins, noticed a huge number of people were dying from preventable catheter infections. He developed a 5-step checklist and the infection rate at multiple ICUs dropped to zero. A grocery list is a checklist in a low-risk environment to make sure we do what we need to. Why not also use one when the stakes are higher?
Alter strategy based on your standing. David beat Goliath with a slingshot – not strength. If you’re the underdog, you have to think outside the box. If you have a clear advantage, isolate the game to your edge. Small countries have increasingly won wars against larger powers by shifting strategy and refusing to engage strong countries where they have an advantage.