The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael J. Mauboussin

The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael J. Mauboussin

Author:Michael J. Mauboussin
Language: eng
Format: epub, mobi
Publisher: Harvard Business Review Press
Published: 2012-11-05T21:00:00+00:00


Source: Analysis by author.

The message that correlation does not equal causality is also relevant. A theory is an explanation of cause and effect, and statistics is a means to test theories. The process of identifying your objectives and thoughtfully considering what factors lead to those objectives is essential. As we saw, companies often fail to go through these steps before adopting nonfinancial measures.

Finally, while skill is persistent, it is not always the case that persistence reveals skill. A careful consideration of what elements of performance are within the command of an individual or a sports team is essential. For instance, active share is something that is clearly under a portfolio manager's control, assuming no external constraints. On the other hand, success by means of the Matthew effect—the rich get richer—is consistent but is largely the result of luck.27

Statistics are widely used in a range of fields. But rarely do the people who use statistics stop and ask how useful they really are. The simple test of persistence and predictive value goes a long way in judging how practical a measure is likely to be.



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