Luck and Skill Interact To Produce Results

It always amazes me how people relate to luck. Spock occasionally pointed out, “Random chance has operated in our favour.” It is deeper than random chance.

Luck can affect everything

Eventually we discover that outcomes are, at least partly, driven by luck or”random chance.” I know a former NHL player who claims the only reason he got a chance is because a scout who came to watch another player could not see him. The other player was injured early in the game and the scout changed his focus.

The player underestimates how much his skill, attitude and work ethic contributed to his eventual success. Luck is usually a one-off and happens early. Outcomes result from both skill and luck.

Luck is process driven.

You must position yourself so luck could operate in your favour. Even the remote chance of success in a lottery requires that you buy a ticket. Other things are similar.

You will develop no new products or processes without research and development being part. There must be effort along a line that promises the possibility of success.

The question becomes, how much of each outcome comes from skill and how much from luck?

Other than presenting yourself in situations where luck could happen, there is little anyone can do to control the effect. They can however, influence skill and the application of it.

Suppose I am playing golf with Bubba Watson. He will unquestionably beat me by a wide margin if we play long enough, but what if we play just one hole? Under some circumstances, I could win.

Suppose I hit my tee shot with skill 10 on a scale of 50. Bubba hits his at 40 on the same scale. Luckily for me, I land in the fairway and roll to an acceptable place. Luck +20. Bubba is unfortunate.  His magnificent drive lands on a sprinkler head and bounds into the trees. Luck -40. I am at a combination of 10 + 20 =30, while he is 40 – 40 =0. Where we go from there is now in my favour. I could still lose the hole because I am much less skilled, but Bubba has some catching up to do.

The luck/skill problem is one of perception.

People should objectively analyze what happens and take nothing personally. If they mistake luck for skill, they will make harmful decisions in future. Luck is not necessarily replicable, while skill tends to be.

Years ago, Nicholas Nassim Taleb wrote a book entitled “Fooled By Randomness.” Interesting idea, right?

His thought and observations are sound. People like to attribute causation, and good results that were essentially good luck need a magical quality to explain. People assume the magic.

Bad luck may have no systemic explanation either. Young people die by accident every day. Some people who take care of themselves get sick.

Do not overthink causation.

Over a long time, luck evens out and skill is durable. People should devote most of their effort to developing skill and the rest to finding fertile situations where good luck could help.

Luck has a use

If nothing else, it can explain the success of the people you don’t like.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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