Tuesday, May 24, 2016

Luck - V

You can say that successful people are intelligent, hardworking, persevering and driven but the reverse is not true - all intelligent, hardworking, persevering and driven people are not successful. The difference between the smaller set of successful people and the larger set of people with similar qualities to those associated with successful people is luck or what is commonly called 'being in the right place at the right time'.

The reason why only successful people attract attention is because of the survivorship bias - you tend to look at only the survivors of a process, not at the failures. A statement by Walt Disney seems to be popular - 'if you can dream it, you can do it'. Well, the number of people who dreamt something and didn't do it is far greater than those who did. You can't tell the difference between the two groups till you study both groups. But those who failed didn't write autobiographies. As Amitabh Bachchan says in the film Deewar, 'sapne samundar ki lahron ke tarah hoti  hain, woh hakikat ki chattanon se takarah kar toot jati hain.' (Dreams are like the waves on the ocean; they  hit the rocks of reality and break up.)

In the 1982 book In Search of Excellence (more than three million copies sold), Tom Peters and Robert Waterman identified eight common attributes of 43 “excellent” companies. Since then, of the 35 companies with publicly traded stocks, 20 have done worse than the market average. People are reluctant to acknowledge that the world is more messy than their models suggest. It is tempting to think that successful people have the controls in their hands and can tame Lady Luck. Success looks neat and tidy in hindsight.

The evaluation of the strategies and qualities of companies and individuals depends on the perception of their outcomes. As Phil Rosenzweig says in The Halo Effect: . . . and the Eight Other Business Delusions That Deceive Managers (highly recommended), 'if a diversification strategy succeeds,  it will be described as 'deftly maneuvering into new areas'; if it fails, it will be described as ' drifting' or 'straying from its core'. (Perhaps the failure was  due to 'causal ambiguity'. Maybe it was caused by ''idiosymcratic contingency'. The above-mentioned book says that it is the way PhDs say 'I don't know'.)

In The Black Swan, Nassim Taleb tells a story to illustrate survivorship bias, a story that had been related by the Roman orator, Cicero. One Diagoras was shown painted tablets bearing the portraits of some worshippers who prayed, then survived a subsequent shipwreck. The implication was that prayer protects you from drowning. Diagoras asked, “Where are the pictures of those who prayed, then drowned?” Those drowned believers are ignored in the analysis. Taleb writes:
Consider the thousands of writers now completely vanished from consciousness: their record does not enter analysis. We do not see the tons of rejected manuscripts because these writers have never been published...Consider the number of actors who have never passed an audition but would have done very well had they had that lucky break in life.
There is a graph called Socio-economic status (SES) gradient. The poorer you are the greater your chances of suffering from respiratory disorders, ulcers, psychiatric diseases etc.There are obvious possibilities like lack of health-care access, dangerous working conditions, lack of education etc. But the main reason seems to be due to the stress of poverty caused by psychological factors. It is also caused by  being made to feel poor.

The survivorship bias can make people feel poor. Consider a group of millionaires. They will compare themselves to over 99% of the people and feel pleased with themselves. Now put a few billionaires among them. They will start comparing themselves to the minuscule group of survivors and stop feeling so pleased. Your happiness seems to depend on your neighbour's wealth.

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