The Success Equation: Untangling skill and luck in business, sports and investing

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The Success Equation: Untangling skill and luck in business, sports and investing

Mauboussin’s own career was launched due to luck. All six people on the selection panel at his investment bank had rejected him, but in his final 10 minute interview with the top decision maker, he spotted a Washington Redskins football team bin and an instant connection was made. While it was his skill that kept him in his job, it was luck that opened the door.

Much of what we experience in life results from a combination of skill and luck…And yet we aren’t very good at distinguishing between the two.”

Michael J Mauboussin

His goal is for readers to better understand how much skill or luck – and usually a combination of both – contribute to results, and so helping people make better predictions and achieve success in the future. The book is divided into three parts. Firstly, Mauboussin defines skill and luck, and helps us understand why it is so difficult to interpret statistical results accurately, and then develops the idea of the luck skill continuum and how to use it as a framework for decision making. Activities like investment are largely due to luck, while skill in sport can be learnt through dedicated practice. In the second part of the book, he delves into the continuum and other tools to analyse how much influence luck or skill had in a result, how skills will peak and then tail off, and how to identify a useful or useless statistic. Finally, he offers suggestions about putting the theories into practice, how to cope with luck – good or bad – and an in-depth explanation of reversion to the mean and how most people misinterpret this.

Interesting examples include:

While the terms standard deviation or reversion to the mean may cause some to shudder with memories of school maths lessons, perhaps a small dose of dedicated practice to improve our statistical skills, and a little bit of luck, may just lead to that elusive success.

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About the author Michael J. Mauboussin is a Managing Director and Head of Global Financial Strategies at Credit Suisse. He is the author of three books, including More Than You Know: Finding Financial Wisdom in Unconventional Places, named in the 100 Best Business Books of All Time by 800-CEO-Read. Michael is an adjunct professor of finance at Columbia Business School and is chairman of the board of trustees of the Santa Fe Institute.

Reviews

“With this book, Mauboussin takes an important step in making a case for the role of statistical analysis in decision-making in various contexts, ranging from CEO compensation to child rearing to college rankings and even picking the next musical superstars.” Business World magazine

“… for investors and business executives wishing to minimise the risk of bad luck, this is a book worth reading.” Financial Times

“There is a lot of thought-provoking stuff in the book, for sports fans as well as investors.” The Economist

 

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Book Details

Author: Michael J Mauboussin

ISBN: 978-1422184233