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As Tversky and Kahneman have explained, “Chance is commonly viewed as a self-correcting process in which a deviation in one direction induces a deviation in the opposite direction to restore the equilibrium. In fact, deviations are not ‘corrected’ as a chance process unfolds, they are merely diluted.” 

Such contingency explains why sports provide the world’s best reality show. The better team does not win every game.

Its power, its meaning, and its joy are wrapped in its improbability. In retrospect, it seems destined. That the U.S. team was “born for this.” The truth is, despite the power and greatness of Brooks’ speech, it was anything but. 

As Stephen Jay Gould famously argued, were we able to recreate the experiment of life on Earth a million different times, nothing would ever be the same, because evolution relies upon randomness. Indeed, the essence of history is contingency.

Mauboussin describes the “paradox of skill” as follows: “As skill improves, performance becomes more consistent, and therefore luck becomes more important.” In investing, therefore (and for example), as the population of skilled investors has increased, the variation in skill has narrowed, making luck increasingly important to outcomes.

All-time great teams still lose about one out of every three games, all to inferior teams, demonstrating that winning baseball games involves a lot of luck.

Since mean reversion establishes that the expected value of the whole season is roughly 50:50 (or slightly above or below that level), a 60 percent winning percentage being really good means that there is a lot of randomness built into baseball outcomes.

Luck matters. A lot. Yet, we tend dramatically to underestimate the role of randomness in the world. 

The self-serving bias is our tendency to see the good stuff that happens as our doing (“we worked really hard and executed the game plan well”) while the bad stuff isn’t our fault (“It just wasn’t our night” or “we simply couldn’t catch a break” or “we would have won if the umpiring hadn’t been so awful”). Thus, desirable results are typically due to our skill and hard work — not luck — while lousy results are outside of our control and the offspring of being unlucky.

Michael Mauboussin’s The Success Equation seeks to untangle elements of luck and skill in sports, investing, and business

Randomness rules.

the ever-increasing aggregate skill (supplemented by massive computing power) of the investment world has come largely to cancel itself out.

Meanwhile, Smith argues that effort and repetition mean a great deal to athletic success, but that innate talent, which cannot be taught, means even more. Thus practice — even perfect practice — does not make perfect.

 randomness explains why the best team or player doesn’t always win, even though the best will tend to win more often. Being very good merely improves the odds of success. It doesn’t guarantee it. 

we should all recognize that the outcomes in many activities in life combine elements of both skill and luck. Like baseball, investing is one of these. Understanding the relative contributions of luck and skill can help us assess past results and, more importantly, anticipate future results, a point to which Mauboussin pays particular attention.

Lady Luck is crucial to investment outcomes. There is no getting around it. Managing one’s portfolio so as to benefit the most from good luck and (even more importantly) to get hurt the least by bad luck are the keys to investment management. Doing so well is a remarkable skill, but not the sort of skill that’s commonly assumed, even (especially!) by professionals.

In the markets, the average investor underperforms due to costs alone. Poker is similar on account of the house’s rake. Yet most investors — like most poker players and most people generally, due to optimism bias — think they are better (and often much better) than the norm

In a “quasi-experimental” study, researchers set out to examine these questions in poker. They got together a group of both expert and novice poker players to play fixed games, meaning that the players received hands that the researchers had set up – without the knowledge of the players – to test how things would go under various scenarios. The results revealed that while the cards dealt (luck) largely predicted the winner, skill was crucial to reducing losses when players were dealt a bad hand. That’s a true if unsurprising result as far as it goes. But the conclusion of the study (“that poker should be regarded as a game of chance”) is clearly overstated.

It’s surely true that over the short term, luck dominates skill in poker. However, over longer and longer periods of time – a much larger database of hands – a slight skill advantage will result in a positive win rate because no player will have better cards in the aggregate. In other words, given enough time, luck cancels itself out.

As Silver argues in The Signal and the Noise, especially when the skill differential is not great, the interesting question is how long it will take for skill to win out.

consistent with the study – the primary reason is that the expert player makes fewer mistakes. Science seeks the truth by uncovering and discarding what is false. What’s left is likely to be true.

As noted above, we all like to think that our successes are earned and that only our failures are due to luck – bad luck. But the old expression – it’s better to be lucky than good – is at least partly true. That said, it’s best to be lucky *and* good. As a consequence, in all probabilistic fields (which is nearly all of them), the best performers dwell on process and diversify their bets. You should do the same.

what we should already know – market success (however defined), especially over the relatively short run, is more a matter of luck than of skill.

nvestment performance data support this idea unequivocally. As Charley Ellis has shown, “research on the performance of institutional portfolios shows that after risk adjustment, 24% of funds fall significantly short of their chosen market benchmark and have negative alpha, 75% of funds roughly match the market and have zero alpha, and well under 1% achieve superior results after costs — a number not statistically significantly different from zero.” 

As Silver emphasizes in The Signal and the Noise, we readily overestimate the degree of predictability in complex systems [and t]he experts we see in the media are much too sure of themselves (I wrote about this problem in our industry from a slightly different angle…). Much of what we attribute to skill is actually luck.

Plan accordingly.

Three years since its start we are still more likely to see the pandemic in partisan rather than world-historical terms. And the grandly tragic story of the pandemic takes on a profoundly different shape and color depending on the nature of its first act.

In a world where a natural origin was confirmed beyond all doubt, we might look back and narrate the pandemic as one particular kind of story: a morality tale showcasing the incomplete triumph of modern civilization and the enduring threats from nature, and highlighting the way that, whatever we might have told ourselves in 2019 or 2009 about the fortress of the wealthy world, pandemic disease remained a humbling civilization-scale challenge no nation had very good answers for.

in a world where a lab-leak origin had been confirmed instead, we would probably find ourselves telling a very different set of stories — primarily about humanity’s Icarian hubris, or perhaps about scientists’ Faustian indifference to the downside risks of new research, or the way in which very human impulses to cover up mistakes and wrongdoing might have compounded those mistakes to disastrous global effect.

It would have been, “We brought this on ourselves.” Or perhaps, if we were feeling xenophobic rather than humbly human, “They brought this on us,”

the pandemic would probably have joined nuclear weapons as a conventional illustration of the dark side of human knowledge, perhaps even surpassed them — 20 million dead is nothing to trifle with, after all, though it remains less than the overall death toll of World War II or even the Great Leap Forward.

the horror would also offer a silver lining: If human action was responsible for this pandemic, then in theory, human action could prevent the next one as well.

if the figures are even mostly reliable, they reflect a remarkable indifference on the part of the country to the source of a once-in-a-century disease disaster

It is as though we’ve decided both that the pandemic was “man-made” and that its emergence was a kind of inevitability we can’t do much about.

a definitive confirmation of a lab origin probably would not mean that responsibility lay in any simplistic way with China. But that isn’t to say the case wouldn’t have been made, probably in a variety of forms — calls for “reparations,” demands for global provision of free vaccines — that would only have contributed additional antagonism and resentment to the world stage, further polarizing the great-power landscape.

It would be as though following a catastrophic earthquake, we didn’t bother to sort out whether it had been caused by local fracking but instead argued endlessly about the imperfections of disaster response

as we piece together a working history of the past few years, you might hope we’d grow more focused on nailing the story down.

it seems likely to me that in the very earliest days of 2020, with cases exploding in China but not yet elsewhere, knowing that the disease was a result of gain-of-function research and had escaped from a lab probably would have produced an even more significant wave of global fear

n a world where neither narrative has been confirmed, and where pandemic origins are governed by an epistemological fog, I worry we have begun to collate the two stories in a somewhat paradoxical and self-defeating way

presumably, many fewer people contemplating the initial news would’ve assumed that the outbreak would be largely limited to Asia, as previous outbreaks had been; public health messengers in places like the United States probably would not have so casually reassuring; and even more dramatic circuit-breaking responses like a monthlong international travel ban might’ve been instituted quite quickly

As the pandemic wore on, I suspect that effect would have lingered beyond the initial panic. At first, it might’ve been harder to decide that the virus was just something to live with if we knew simultaneously that it was something introduced to the world in error.

And later, when the vaccines arrived, I suspect there might have been considerably less resistance to them, particularly on the American right, where anxiety and xenophobia might have trumped public-health skepticism and legacy anti-vaccine sentiment

the opposite counterfactual is just as illuminating

The question and its unresolvability have mattered enormously for geopolitics,

it is hard to think “superbug” and not panic.

The disease and global response may well have accelerated our “new Cold War,” as Luce writes, but it is hard to imagine an alternate history where a known lab-leak origin didn’t move the world there much faster.

On the other hand, the natural logic of a confirmed zoonotic origin would probably have been to push nations of the world closer together into networks of collaboration and cooperation

the direction of change would have most likely been toward more integration rather than less. After all, this is to some degree what happened in the wake of the initial outbreaks of SARS and MERS and the Ebola outbreaks of the past decade.

Instead, the geopolitics remain unsteady, which is to say, a bit jagged

The United States can weaponize a narrative about lab origin — as China hawks in both the Trump and Biden administrations have repeatedly done — without worrying too much about providing real proof or suffering concrete backlash.

And China can stonewall origin investigations by citing sovereignty rights and a smoke screen story about the disease originating in frozen food shipped in from abroad without paying much of an international price for the intransigence or bad-faith argumentation, either.

each has carried forward a gripe that needn’t be substantiated in order to be deployed.

ambiguity also offers plausible deniability, which means that without considerably more Chinese transparency and cooperation, those pushing both stories will find themselves still making only probabilistic cases. We’re probably going to be living with that uncertainty, in a political and social world shaped by it, for the foreseeable future

Hirschman was suggesting that doubt could be a source not of paralysis and death but of creativity and self-renewal. One of his last books, published when he was about eighty, is called A Propensity to Self-Subversion. In the title essay, Hirschman celebrates skepticism about his own theories and ideas, and he captures not only the insight but also the pleasure, even the joy, that can come from learning that one had it wrong.

Hirschman’s work changes how you see the world. It illuminates yesterday, today, and tomorrow. His categories become your categories.

Hirschman sought, in his early twenties and long before becoming a writer, to “prove Hamlet wrong.” In Shakespeare’s account, Hamlet is immobilized and defeated by doubt. Hirschman was a great believer in doubt—he never doubted it—and he certainly doubted his own convictions. At a conference designed to celebrate the thirtieth anniversary of his first book, who else would take the opportunity to show that one of his own central arguments was wrong

Who else would publish an essay in The American Economic Review exploring the “overproduction of opinionated opinion,” questioning the value of having strong opinions, and emphasizing the importance of doubting one’s opinions and even one’s tastes? Hirschman thought that strong opinions, as such, “might be dangerous to the health of our democracy,” because they are an obstacle to mutual understanding and constructive problem-solving.

The Rhetoric of Reaction (1991) is a study of the reactionary’s tool kit, identifying the standard objections to any and all proposals for reform. The objections are “perversity” (the reform will make the problem even worse), “futility” (the reform will do nothing to solve the problem), and “jeopardy” (the reform will endanger some hard-won social gain). Hirschman shows that these objections are stupefying, mechanical, hyperbolic, and often wrong

He insisted that human history provides “stories, intricate and often nonrepeatable,” which “look more like tricks history has up its sleeve than like social-scientific regularities, not to speak of laws.” He was interested in “the many might-have-beens of history,” including “felicitous and surprising escapes from disaster.

Hirschman was delighted by paradoxes, unintended consequences (especially good ones), the telling detail, inventories of actual practices (rather than big theories), surprises, and improvisation. In his view, “history is nothing if not farfetched.”

He invented the term “possibilism,” meant to draw attention to “the discovery of paths, however narrow, leading to an outcome that appears to be foreclosed on the basis of probabilistic reasoning alone.” In his lifetime, one of many such outcomes was the abrupt collapse of the Soviet Union in 1989, which almost no one anticipated.

Shifting Involvements—a small masterpiece that illuminates the Tea Party, Occupy Wall Street, and protest movements of diverse kinds. Hirschman emphasized that human beings are often choosing between private and public life, and thus between the different forms of happiness that are associated with each of them. He described “pendular motions of collective behavior,” in which people swing from happiness to disappointment in one kind of activity, and then to the other. For example, the disappointments and frustrations of the student rebellions of the late 1960s encouraged a return to private life in the 1970s and 1980s. Rejecting the highly influential idea that the problem of collective action has a kind of invariable, ahistorical “logic,” Hirschman drew attention to the immense importance of history and timing as, in Adelman’s words, “people leave the streets and plazas disenchanted with politics to seek happiness in the shopping malls”—and vice versa.

The Rhetoric of Reaction, written in his mid-seventies, was an outgrowth of the conservative ascendancy of the 1980s, and it speaks directly to our current debates. Hirschman was struck by the routine, stylized, even mechanical character of much conservative thinking—and its close connection, in its rhetoric, to arguments that have been made for hundreds of years. Indeed, conservative rhetoric is the book’s target, perhaps above all in the person of Edmund Burke,

But if The Passions and the Interests was his favorite, and Exit, Voice, and Loyalty his most important, there can be no question about his most characteristic: The Rhetoric of Reaction. The sustained attack on intransigence, the bias in favor of hope, the delight in paradox, the insistence on the creative power of doubt—all these prove a lot of people wrong, not just Hamlet.

To find out whether global warming has affected the likelihood of a real-life event, scientists look at existing weather records and compare them with models, including simulations of how the weather would behave in a world that isn’t warming. The concept has matured since it was conceived more than a decade ago, but it is necessarily probabilistic by nature

“Some say the uncertainties are too big,” says Otto. “There are indeed caveats, mostly to do with imperfect climate models. But even with large uncertainty bars we think it is useful to provide quantitative evidence for how climate change is affecting extreme weather,”

But in a second analysis that looked at historical temperature records over the past century rather than models, the team calculated that the likelihood of such a heatwave in June has in fact increased 100 times since around 1900, owing to the combined influence of climate change and other factors such as air pollution

The probability calculated by the models is likely to be an underestimate, say the researchers. That’s because unlike the real-world data, the simulations consider only climate-related factors, and don’t represent aspects such as changes in cloud cover, land use, irrigation and air pollution, which all seem to have an influence on temperature

“Climate models are missing something when it comes to capture fairly short-lived heat events,”

To date, more than 200 attribution studies have examined whether climate change made particular events — including heat spells, droughts, floods and storms — more likely. Researchers found that about two-thirds of the extreme events they analysed were made more likely, or more severe, by the build-up of greenhouse-gases in the atmosphere.