In his book Thinking Fast and Slow, Daniel Kahneman describes an "illusion of skill" where too much weight is attributed to skill rather than other factors like blind luck. He recalls a time he was invited to speak to 25 top investment advisers who had given him eight years worth of their spreadsheets to analyse. 

Did the same advisers consistently achieve better returns year after year?

Did some display more skill than their peers?

To find the answers he looked at the correlations over the eight years but found no evidence of skill. 

He concluded: "The stability that would indicate differences in skill was not to be found. The results resembled what you would expect from a dice-rolling contest, not a game of skill. The firm was rewarding luck as if it were skill."

One advisor went on the defensive when he heard this and said "I have done very well for this company and nobody can take that away from me." But if it's mostly down to chance, how much credit are you entitled to take for it? There is no doubt Kahneman's message was forgotten.

Kahneman talks about how we like nice stories that seem to fit the narrative over cold statistics. Emotion over logic. We are very poor at looking at the bigger picture.

How much chance do you think is involved in big business? Sports? How common is this illusion of skill? I'd be willing to bet it's very common. 

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 I think primarily of one book, can't remember which, which predicted a financial crisis tied to the bursting of a housing bubble, published sometime in late 2007 I think.  

The book was written by a she, not a he, I think. Is Meredith Whitney the writer you are thinking of?

There is a Frontline video named The Warning about Brooksley Born, who headed an obscure agency tasked with overseeing derivatives, the investment which caused the financial crisis. She saw the future, warned about it in front of congressional committees and was ignored.

Hey Logicallunatic,

Speaking experientially I can say I think I agree with this. It's all about privilege, sadly. Everyone I know who is "successful" had circumstantial differences that were salient and clear when the onion layers are peeled back (i.e. when you really get to know them). If you know the circles people hang out in then you recognize privilege very quickly when you see it in someone; even if just by a passing remark.

- kk

Serendipity is underrated.


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