Untangling skill and luck in sports and business

In the era of big data, in which everything is calculable, is there such a thing as luck anymore?

So asks Entrepreneur magazine, of Michael Mauboussin, author of The Success Equation.  He thinks the role of luck in business, investing, and sports is greater than ever because technology and best practices are so widely disseminated and articulated:

The difference between the very best players and the average players is less today than it was in the past.  If skill is more uniform, and luck stays the same, that means luck actually becomes more important in determining outcomes.  It’s everywhere you look.  But one area where you can see it very readily is in sports: In 1941, Ted Williams became Major League Baseball’s last player to hit over .400 in a single season.  Why has no one been able to do that since?  The answer is because skill is much more uniform today.

A more recent baseball example would be “Moneyball,” which gave the Oakland A’s an advantage that was first dismissed, then disparaged, then successfully copied by other baseball clubs and other sports.  (This video provides a brief overview at our YouTube channel.)

Mauboussin goes on to argue that while you can’t make your own luck, you can manage it:

One way comes from Colonel Blotto, a model from game theory, which says if you and I are competing with one another, and you’re the stronger player, your goal should be to simplify the game to make sure that your skill overwhelms mine.  By contrast, if you’re the underdog, you want to complicate the game, to add dimension to the competition.  That will dilute the strength of the stronger player.  In entrepreneurship, this would be disruptive innovation.  In warfare, this would be guerrilla tactics.  There’s a long history about this in military strategy, corporate innovation, etc.  You’re basically changing the nature of the game so luck becomes more important.

If you can’t make luck, perhaps you can create the circumstances for it to show up.  In Four traits that drive entrepreneurial success we quote author Anthony Tjan, who recommends humility, curiosity, and optimism towards relationships:

In many instances, when we talk to people who describe themselves as lucky, it’s really their outlook toward relationships that helps them create the circumstances for luck, and their attitude helps them take advantage of it… There are plenty of times when you’re going to conferences or cocktail parties, and you’re thinking about where there’s a fit [in making a connection].  You’re trying to quickly assess and screen value, and we all fall prey to that.  People who are laid-back and luck-driven are the ones who discover the wallflowers, and they benefit disproportionately later in life from some of those relationships…  There are many great leaders who, if you met them at a cocktail party, you’d just skip over because they have a different personality type…  Lucky people have an openness, an authenticity, and a generosity toward embracing people – without overthinking ‘what’s the value exchange’?  It’s just, that’s an interesting person…  Luck alone doesn’t explain it.  [Most people] next to that same person probably wouldn’t have realized that opportunity because of their attitude.  They probably wouldn’t have embraced that moment.

Luck is often mislabeled in business.  A better word might be serendipity – the happy accident responsible for many remarkable innovations:  Gmail, Aspirin, the Pill, insulin, penicillin, antihistamines, the smallpox vaccine, Teflon, Velcro, Nylon, Ivory Soap, the Post-It note…

The term serendipity was coined in the 18th-century by novelist Horace Walpole, inspired by the Persian fairy tale about three princes traveling through the land of Serendip.  They “were always making discoveries, by accidents and sagacity, of things they were not in quest of.”  What distinguished their “abilities” from simple luck was that they could see meaningful combinations where others did not.

Happy accidents may be more a matter of the right environment than the the right process.  Research from Harvard Business School suggests that serendipity is a close relative of creativity and can be encouraged by a few organizational factors.  Serendipity:

Benefits from scarcity (forcing people to be creative) and from a degree of sloppiness, tenacity, and dissent

• Depends partially on socialization (who you share offices and interests with)
• Gets a boost from tinkering, especially when co-workers tinker with resources for things they care about personally

To this list we might add:  maintaining a high-trust environment, allowing people to play with mistakes, encouraging trial and error, and accepting an “optimal degree of wastefulness” in which minds wander and activity can seem directionless.