"That randomness naturally leads to streaks contradicts people's intuition." Leonard Mlodinow
As luck (or, perhaps, random chance would have it), I was just in the process of finishing Leonard Mlodinow's excellent book, "The Drunkard's Walk: How Randomness Rules Our Lives," when I came upon this article written by him in today's Wall Street Journal. It is entitled "The Triumph of the Random" and I can't recommend it highly enough.
I say this because it will likely challenge your views of whether athletic feats of greatness — such as Joe DiMaggio's famous 56-game hitting streak or Kobe Bryant's recent 81-point game — are as much a matter of skill as they are random luck.
The reason this matters — especially in the business world — is because all too often people believe that streaks (especially smaller ones) are the result of a broader trend than they really are.
As an example, Mlodinow cites the example of a World Series match-up between a favored team and an underdog. Assuming that the favored team has a 55% chance of winning every game and the underdog only 45%, most people assume that given a seven game series the better team win will the series in an overwhelming majority of cases.
This isn't true. The underdog can actually be expected to be crowned "World Champion" 40% of the time. Imagine that — forty percent of the time the "better" team won't be the winner!
The analogous situation in a business environment is that of the "focus group." All too often marketers use a relatively small sample of people in a focus group to make broader predictions about the population.
For example, the fact that 6 out of 10 people prefer a particular beverage or food product is more likely to be the result of random chance than an accurate reflection of a trend. Or the fact that your stock broker has beaten the market the last three years (or, alternatively, performed worse than the market) may have less to do with his or her financial acumen and more to do with random luck.
As I have said before, however, people are so good at seeing patterns that we often see one where none exist. This is worth keeping in mind next time you see a "hot" streak in baseball or basketball, or pat yourself on the back for having your stock portfolio outperforms the market for a couple of years in a row.
If you don't believe me, read the Mlodinow article.
