Experiment Part 1: Luck and skills

6 December, 2014 0 No tags 0

In the previous post, I commented how common is in our world to confuse luck with skills, and how living under the influence of this misunderstanding, may be catastrophic.

We often have the mistaken impression that a decision is a good decision when we reach the desired results. Of course, luck had nothing to do with it, it was our vision, our painstaking calculations, our impeccable strategy and way of doing. But when we do not achieve what we wanted, we always say the same thing: we had bad luck, impossible to foresee that or the other.

Let’s see how we are able to explain what cannot be explained. This is a sample study in our laboratory. The sample will be 10,000 CEO ‘s.

The rules of the experiment are as follows: we assume that those CEOs who achieve the objectives of that year, will remain on the market. Those who fail will exit the market, will be dismissed. To determine whether a CEO has achieved the objectives we will launch a coin, if heads it will determine the objectives were achieved. If tails, will determine that the objectives where not achieved (as we are in a lab assume that the probability of getting heads or tails we flip the coin is 50%).

Since the probability is 50%, the first year it will be on the market 5,000 directors, who will be those who have achieved both. And another 5,000 will leave the market, which will be those who have not achieved the objectives. And so on. This is going to make for ten years, where we will get the results shown in table one.

Year CEO´s universe Probability (50%) Survivors CEO´s
1 10.000 2 5.000
2 5.000 2 2.500
3 2.500 2 1.250
4 1.250 2 625
5 625 2 313
6 313 2 156
7 156 2 78
8 78 2 39
9 39 2 20
10 20 2 10

As we see in the table, the tenth year, ten directors will remain on the market. Ten survivors. To continue the experiment we will bring the real world to the ten survivors. These ten types, types that are considered successful, brilliant professionals, who hold the offices and positions that have, due to their superb training, outstanding strategy and careful education. Some perhaps, even write blogs, articles and teach classes in any business school.

In fact, if we could interview them or talk to them, we would be able to explain in detail how they have come to occupy or maintain their current positions. We describe in detail its magnificent strategies, their careful management, and unparalleled vision. In fact it’s what they do. This shows that we are able to build magnificent (and false) retrospectives stories. We are able to fully explain past events. The only thing they would not want to accept is that they are where they are because of luck.

We can continue the experiment by a new roll. The following year, the eleventh year, will be half (five directors) as shown in table two.

Year CEO´s universe Probability (50%) Survivors CEO´s
1 10.000 2 5.000
2 5.000 2 2.500
3 2.500 2 1.250
4 1.250 2 625
5 625 2 313
6 313 2 156
7 156 2 78
8 78 2 39
9 39 2 20
10 20 2 10
11 10 2 5

Once you have reached the eleventh year, back to the real world again. We will meet again superb explanations of how the five directors are no longer on the market. How did not meet its objectives. They will explain the type: “success made him to trust … “, ” they had slacked off …”, etc.

From this experiment we can obtain three conclusions:

First conclusion: very few people are able to recognize that fate influences your career and business. In fact, as we have seen, there are professions in which fate is decisive.

Second conclusion: the higher the number of professionals in the field, the greater the likelihood that there are some with great success as a result only of luck.

Third conclusion: this actually has a huge bias, the dead do not talk, have a look:

Year CEO´s universe Probability (50%) Survivors CEO´s Not survivors CEO´s (the cemetery)
1 10.000 2 5.000 5.000
2 5.000 2 2.500 2.500
3 2.500 2 1.250 1.250
4 1.250 2 625 625
5 625 2 313 313
6 313 2 156 156
7 156 2 78 78
8 78 2 39 39
9 39 2 20 20
10 20 2 10 10
11 10 2 5 5

We have now added something you have not realized before, the column of the cemetery. The non survivors (of the dead on duty). If you look at the column no survivors, they are there, but you do not see them. And is that the dead do not talk. They have no voice, no visibility, and no nothing. And therefore they cannot tell the other side of the story. And they were at the beginning of the game in the same conditions as others, were one of the 10,000. But one day they just came out the other side of the coin and will it be the end of story?

One is the end of the story if you’ve popped out, if you will bet more than you can lose. If you bet more than you could lose means you will not be able to return back to square one. If you bet what you were willing to lose, it means that only you have bled, that you have not been busted yet and you can get up again, you can go back to square one. You can go back to try again. In fact, you can even decide to voluntarily return to square one:

  1. You can sell your business and start again with another project.
  2. You may decide that you’ve lost what you had to lose; you do not want to be popping out. This gives you the possibility to return to square one as you’ve recovered.

 

 

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