Book review: The Success Equation by Michael Mauboussin

Writing these reviews has been very helpful for me. It forces me to go over the material again, review what I have read and apply introspection in terms of what I actually consumed and what I’ve taken away from it. That’s why I’m going to make these a regular part of the website. This is the book of the day:

The Success Equation

What The Success Equation is about

This book is about skill, luck, the relationship between those two and how you disentangle the two. The book goes into great detail about that, it took me about an hour re-reading and summarizing the main points:

  • An easy rule of thumb to distinguish between skill-based and luck-based activities is asking yourself: can you lose on purpose? For example, you can lose a chess game on purpose (pure skill) but you cannot lose at roulette on purpose (pure luck).
  • Humans are bad at telling the two apart because our brains are wired to find causal relationships even when there are none. Our brains love stories and are perfectly capable of creating a story between two arbitrary events.
  • Three easy questions to identify how skill-based an activity is: 1. Can you determine someone’s level with a small sample? A strong chess player will be evidently stronger even after a few games. 2. Can you tell cause and effect apart? Take, for example, investing: the performance of a portfolio might or might not be caused by the picks made and a causal relationship is hard to establish. 3. Is it stable and linear, i.e. do the same action lead to the same outcomes? For this reason there’s also very little variance and therefore mean-reversal for skill-based activities.
  • The paradox: the more skill is involved, the bigger a role does luck play, because levels converge at the upper limit of human capacity. Think of two top tennis players that are of equal strength and “fine margins decide a match”.
  • As we become older, our skill levels (fluent knowledge) go down but our wisdom (crystallized knowledge, i.e. fact-based) goes up.
  • Luck can interfere with skill if the process is path-dependent, meaning the outcome of one event has an influence on the next. This is especially the case if social influence is involved. Take a singer that lands a no.1 hit as example. He’s much more likely to have a long and highly successful career than a singer of equal talent with no hit, because his hit has given him connections, a label that promotes him, a fanbase etc. For this reason you see many power law distributions where positive feedback is involved (i.e. where one success makes the next success more likely).
  • Skill-based activities can be trained with deliberate practice. For activities that involve luck you need to pay attention to a sound process and get good feedback (the latter important for both).
  • Behavioral rules: if you are stronger simplify the game, if you are weaker make it more complicated.

Why I chose to read The Success Equation

I’m very interested in the entire field of behavioral psychology, decision-making, biases and the likes. I came across this book by coincidence and it struck me as a must-read in this field.

What I liked about The Success Equation

It took me quite a while to piece together the best parts for the summary, meaning there was plenty of interesting content. The author does a great job of explaining general concepts and ideas with a multitude of examples. I summed up the general thoughts but the book has dozens of pages of examples in terms of how luck nd skill are interconnected in real life. The examples come from different areas of life as well, sports, investing and entertainment.

I also appreciated how well-structured the book was. It went from explaining what luck and skill are and how to identify them, to the connection between the two and our thinking to putting this knowledge into practice and deducing guidelines for practice and behavior.

Why I didn’t like

I personally already knew plenty of concepts that were explained in the book, so few struck me as something new. The concept of deliberate practice is well-known, so is the fact that our brains are wired for story. I wouldn’t say the author was rehashing things but if you were to condense it to the really new ideas, you’d get a much shorter book.

That’s also my main issue with it, it was quite lengthy. This is not a quick read, especially because of the many examples the author gives. If you just want the main lessons, you’re better off listening to one of the authors speeches or Ted Talks. Like so many books, the idea can be summed up in a few pages and doesn’t need 300 pages of exposition.

What I learned from The Success Equation

I learned how much influence luck has on real-world events in the shape of social influence and how that leads to an unequal share of rent. We think that a good book was always going to be a hit “because it’s good”. But we don’t see the many equally good books that never get on our radar. The drivers of this phenomenon (technology) and implications from this (inequality) would make for an interesting book in itself.

Who I’d recommend The Success Equation to

I’d recommend this book to people that aren’t well-read in the niche of behavioral psychology and decision-making. It does make plenty of interesting points with good examples, you’d just wish it was more concise.

Recommended to people that want to understand the difference between skill and luck.

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