Important concepts— Success equation by Michael Mauboussin

Karthik Krishnan
Jul 27, 2017 · 3 min read

My learning from book number 4 for the year.. Success equation by Michael Mauboussin.. Absolutely one of my favorite books and a seminal book on the concept of skill and luck and how to think about it for better decision making.. Please read this as a collection of important concepts from the book than a formal review of

  1. The author makes a case for how to think about skill and luck.. Skill is defined as the ability to use one’s knowledge in execution and performance to a task. Luck is defined as situations where skill does not dictate the outcome of an event
  2. Skill follows 3 stages — A cognitive stage where you learn, an associative stage where your performance improves but you don’t have full command and an autonomous stage where the skill becomes habitual and fluid
  3. Developing skill is hard work and there is a difference between experience aka doing something for a long time and expertise that comes through deliberate practice and feedback from coaches.. experts tend to have predictive models while those with experience don’t
  4. The hardest issue with disaggregating skill and luck is that humans love stories and love to generate cause and effect for every situation he/she perceives and many times these are nonsensical or complete baloney.. This has been scientifically traced to a special region in the left hemisphere whose main job is to function as the interpreter or to make sense of the world by finding a cause for every effect
  5. The simple rule of thumb is on the luck skill continuum, the paradox of skill suggests that as skill improves and performance becomes more consistent, the decrease in variance on skill across competitors means that luck becomes more important in determining the outcome of an event.. This suggests that luck can overwhelm skill in the short term if the variance in the distribution of luck is larger than the variance in the distribution of skill.. aka if everyone gets better at something, luck plays an important role in determining who wins
  6. Placing activities on the skill-luck continuum requires you to answer 3 qns a.) a clear relationship between cause and effect where the activities are stable aka the basic structure of the activity does not change over time and linear aka a particular action leads to the same reaction every time b.)slow reversion to the mean , which is consistent with activities dominated by skill and c.) where predictions hold up well
  7. what makes for a useful statistic is that a) they are persistent aka what happens in the present is similar to what happened in the past b) predictive aka there is a high correlation factor
  8. You can become an expert by using deliberate practice to train your system 1
  9. Most jobs combine tasks that are procedural with tasks or situations that are novel. Where cause and effect can be clearly established, checklists can be a useful tool to manage outcomes. There are 2 types of checklists — DO-CONFIRM and READ-DO checklists. DO-CONFIRM checklists , folks do their jobs from memory but pause to ensure that everything is ok. READ-DO checklists typically deal with an emergency or an abnormal situation. When success is probabilistic, focus on the process.
  10. If you are the favorite, simplify the game. If you are the underdog, make it more complicated. Compete in a different way when you are the underdog.
  11. Reversion to the mean is an idea that as luck dominates outcomes, over time, outcomes are likely to regress to the mean . however common mistakes that are made include 1. illusion of cause and effect 2. illusion of feedback which makes it seem that favorable feedback leads to worse results and unfavorable feedback leads to better results 3. illusion of declining variance, the idea that reversion to the mean implies that everything we can measure converges on the same average value over time
  12. Estimated true skill = grand average + shrinkage factor (observed avg — grand avg)
  13. 10 suggestions to improve the art of guesswork a. understand that you are on a luck skill continuum for most outcomes b. assess sample size, significance and swans c. always consider a null hypothesis aka “compared to what”? d. think carefully about feedback and rewards e. make use of counterfactuals aka consider how events would have unfolded if x had not happened f. develop aids to guide and improve skill g. have a plan for strategic interactions h. make reversion to the mean work for you i. develop useful statistics j. know your limitations
Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade