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Luck, Skill, and Clembama

Go Clembama!

Go Clembama!

In last year’s NCAA football championship game, Alabama beat Clemson by a score of 45 to 40.

In this year’s NCAA football championship game, Clemson beat Alabama by a score of 35 to 31.

The aggregate score is 76 to 75 in favor of Alabama.

So, which team is more skilled?

To ponder the question, we need to return to Michael Mauboussin’s ideas* about skill and luck – and, especially, his concept of the paradox of skill.

Let’s start with definitions for skill and luck. For Mauboussin, a key question helps us identify skill: Can I lose on purpose? If the answer is yes, then some skill must be involved in the process, whether you’re shooting hoops or playing poker. If the answer is no, then the process is random – it’s a matter of luck.

Most processes – like NCAA football games – involve both skill and luck. How can we sort out the differences between the two? Was Alabama more skilled last year or just luckier? What about Clemson this year?

Mauboussin’s paradox of skill can help us sort this out. Simply put, the paradox states that: “In activities that involve some luck, the improvement of skill makes luck more important…” We have training programs that can improve skills in many competitive activities, including sports, business performance, combat, and perhaps, even investing. As more people take advantage of these programs and average skill levels improve, you might think that luck would become less important in determining outcomes.

Mauboussin says that exactly the opposite is true. The big issue is skill differential and distribution. If a given skill is unevenly distributed in a society, then skill likely determines the outcome. Luck doesn’t have a chance to worm its way in. On the other hand, if skill is broadly and evenly distributed, then even minor fluctuations in luck can change the outcome.

As an example, Mauboussin cites the difference between the winning time and the time for the 20th finisher in the men’s Olympic marathon. In 1932, the difference was 39 minutes. In 2012, it was 7.5 minutes. Clearly, the skill of marathon running has become more evenly distributed over the past 80 years. We have more people with greater skills more evenly distributed than we had in the past. As a result, the marathon has become much more competitive.

Paradoxically, as the marathon has become more competitive, luck plays a greater role. Let’s say that the 1932 winner had the bad luck of stepping in a pothole at Mile 22 and had to limp to the finish line. Because he had so much more skill than the other runners, he might still have won the race. If the 2012 winner stepped in the same pothole, chances are the other (highly skilled) runners would have caught and passed him. He would have lost because of bad luck.

The paradox of skill should teach us some humility and helps to illuminate the illusion of control. We may think we’re successful because we’re skilled and talented and can control the events around us. But oftentimes – especially when skill is evenly distributed – it’s nothing more than an illusion. It’s just plain luck.

And what about Clemson and Alabama? My interpretation is that both teams are perfectly balanced in terms of skills. So the outcome depends almost entirely on luck: a lucky bounce, a stray breeze, a bad call, a slippery turf, and so on. Let’s celebrate two great teams that have separated themselves from the pack but not from each other. Perhaps we should call them Clembama.

* I used several sources for Mauboussin’s ideas. His 2012 book, The Success Equation, is here. In 2012, he also gave a very succinct presentation to the CFA Institute. That paper is here. His HBR article from 2011 is here. In 2014, he gave a lecture as part of the Authors at Google series – you can find the video here. And David Hurst’s very enlightening review of Mauboussin’s book is here.

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