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Appreciating the Music of Chance

October 28, 2008 I was in a bookstore a couple of weeks ago, and by chance I picked up a new book called The Drunkard’s Walk: How Randomness Rules Our Lives, by physics professor Leonard Mlodinow. The big takeaway from the book—and there is certainly room for debate—is that our “destinies” (and it’s hard to say the word “destiny” without trying to sound like Darth Vader—“Luke, it is your dessssstiny”) are more often than not the results of chance rather than any innate ability or effort on our parts.

Leaders of companies are hired and fired based on an overall company performance that may or may not have anything to do with anything in particular that they did; one of Mlodinow’s favorite examples of this is Hollywood, where studio heads are hired and paid the big bucks according to their supposed abilities to pick hits—and when their hand cools, they are summarily dismissed. When the next year after the firing sees a hit movie, the firers are vindicated, despite the fact that given the long lead times in movie production, any subsequent blockbusters were likely greenlighted by the person who is supposed to have stopped being able to pick hits. The point is that businesses and industries that concentrate on a cult of the individual miss the fact that there are an innumerable amount of random chance events that affect whether something is a hit—or is a success in whatever way a given industry measures success—or something is not.

The book spends a lot of time—and it is time well-spent; Zlodinow is a delightful writer who has a gift for elucidating often complex ideas—looking at the fundamental principles of statistics and probability, citing as an example another often delightful elucidator of complex mathematical concepts: Marilyn vos Savant, author of Parade magazine’s long-running weekly “Ask Marilyn” column. Almost 20 years after the infamous “Monty Hall problem” first appeared in her column, it is still draws debate and discussion to this day. (You know the question: “Suppose you’re on a game show, and you’re given the choice of three doors: Behind one door is a car; behind the others, goats. You pick a door, say No. 1, and the host, who knows what’s behind the doors, opens another door, say No. 3, which has a goat. He then says to you, ‘Do you want to pick door No. 2?’ Is it to your advantage to switch your choice?” In case you’ve never heard of this problem before, I’ve leave it until the end of this post to answer it.) Zlodinow revisits this question and many other controversial probability problems.

Zlodinow uses one graphic example to illustrate the extent to which our minds are seemingly hardwired to think that the world is less random than it actually is. Zlodinow juxtaposes two charts (I am unable to post illustrations to this blog so you’ll have to check out the book). The first graphs the rank of the performance of 800 mutual fund managers in a five-year period (1991–1995). As you would expect, fund performance by the top-rated fund manager outpaces all the others, and performance wanes gradually all the way down to the 800th ranked manager. These sorts of charts are presented all the time to prospective investors. But to what extent do they predict future performance? The second illustration shows how those same funds performed in the next five-year period (1996–2000), and the results are randomly distributed among the purported top 800 managers. In other words, if you were choosing a mutual fund, you would probably do no worse (or better) of you simply flipped a coin or threw darts at a dartboard.

By the way, the term “the drunkard’s walk” is a fairly traditional analogy that is used in the study of randomness—as anyone who has ever teetered home from a New Year’s Eve party can attest. It’s also a bit easier for most people to grok than discussions of Brownian motion.

So why am I talking about a book about randomness in a blog about marketing? You know the joke that could be made here so I shan’t make it. Instead, I will suffice to say that when we evaluate the success or failure of any given marketing campaign (or our businesses, or even our bosses and/or underlings), we need to be careful that we don’t assign all the credit—or all the blame—to the wrong things. Yes, there are some very smart people who can make wise choices, and, of course, there are some very dumb people who make staggeringly unwise choices. But I would argue that most of us fall in the middle ground, and our successes and failures are often due to forces over which we have no control, and either extreme (success or failure) will likely be immediately followed by what statisticians call a “regression to the mean.” The classic example of this is that a star athlete who is “on a roll” will suddenly see his performance drop immediately after he has graced the cover of Sports Illustrated. It’s not that the athlete got any worse, at least measured over the course of his career; he just reverted back to the performance level that was average for him. Anything else is just random chance; a fluke, if you will.

The lesson is that if we fail at something long enough, eventually we will succeed—and vice versa. Therefore, if we’re waiting for our one big break, persistence pays, and The Drunkard’s Walk has enough examples of people who are superstars today—think of J.K. Rowling, Bruce Willis, and others—largely due to a) persistence and b) random luck eventually working out in their favor. It happens more often than you would think.

On a related note, I was reminded of a study I read about a couple of years ago that attempted to gauge whether there as such a thing as “luck” or if some people were just “luckier” than others. And the answer is that, as with anything else, there is no supernatural explanation, but rather a psychological one. As Michael Shermer explained in a 2006 issue of Scientific American:

Lucky people expect good things to happen.

[Experimental psychologist Richard] Wiseman gave subjects the “big five” personality scale, which measures “agreeableness,” “conscientiousness,” “extroversion,” “neuroticism” and “openness.” Although there were no differences between lucky and unlucky people on agreeableness and conscientiousness, Wiseman found significant differences for extroversion, neuroticism and openness.

Lucky people score significantly higher than unlucky people on extroversion. “There are three ways in which lucky people’s extroversion significantly increases the likelihood of their having a lucky chance encounter,” Wiseman explains: “meeting a large number of people, being a ‘social magnet’ and keeping in contact with people.” Lucky people, for example, smile twice as often and engage in more eye contact than unlucky people do, which leads to more social encounters, which generates more opportunities.

In other words, lucky people unconsciously make their own luck, and the findings from this study can also be used as a lens to look at some of the arguments in The Drunkard’s Walk. While much of our destinies are the result of chance, we can take steps to improve the odds of a given chance event happening. Take any desirable random event—say, finding one’s romantic soulmate. Most of us would argue that it is very often a chance encounter that lets us find such a person. But are our chances of finding that soulmate better or worse if we never leave the house? Probably worse. Therefore, we can take steps to increase the nmber of random encounters we have, just as we can buy more than one lottery ticket to improve our chances of winning a jackpot.

And the same can be true of a successful business or a successful marketing campaign. The more chances we take, the more opportunities we have for the flying fickle finger of fate to find us.

Answer to the Monty Hall Problem: Yes, you should switch doors, since doing so increases the probability of winning the car from 1/3 to 2/3. Of course, this assumes you want to win a car. If you’re trying for a goat, stay with your original door.

Posted by Richard Romano on October 28, 2008 | Comments (0)