Let’s start with this thought experiment.

Imagine that in 1995 there were 1,000 eager MBA graduates from a variety of prestigious universities. Imagine that, for all intents and purposes, these graduates were equally skilled and equally motivated to succeed in a corporate career. And, they had equal opportunities. So, in this thought experiment, they essentially had equal likelihood of career success. Now, imagine too that the ups and downs of life (marriages, divorces, children, deaths, etc.) outside of their corporate careers affected them equally too. And, as they progressed their careers over the next 20 years, they, like all of us, were faced with business decisions. Big and small decisions. Short term, long term. All kinds of decisions.

Since all decisions are about the future, which is inherently uncertain, some of the decisions are swayed by good luck. And some by bad luck. And since everyone made many decisions, the cumulative effect of many decisions that were swayed by good luck in the first 5 years resulted in that person being propelled forward in their career. On the flip side, those who had a disproportionate amount of bad luck in the first 5 years were negatively impacted in their career. And most people, by the laws of probability, had a mix of good, bad and neutral luck in their decisions and so they progressed in the broad middle band of average success.

Early good luck breeds self-confidence. Plus, colleagues saw the success and in many cases attributed it to that person's capabilities. Side note: this is the halo effect [1]. With increased self-confidence, empowerment from being promoted, and the backing of colleagues and supervisors, some of those with early luck took bigger, bolder decisions. And again, luck played its part over the next 5 years leading to a portion of those again achieving great success and another portion crashing and burning, and most having mixed success. Similarly, promotions and political support were not forthcoming, and self-confidence was eroded for those who suffered bad luck early on. Some might have become desperate, others resigned themselves to not having progressed well and hence different degrees of risk taking would ensue.

Now 15 years have passed and a subset of the cohort with above average luck in the first 10 years have had above average luck again. Yes, some of the unlucky ones might have achieved great luck due to taking big risks driven by say fear or desperation. But, keeping it simple for this thought experiment, let’s focus on those with repeat good luck, and those with repeat bad luck. For the final 5 year segment this continues and a subset of the original 1,000, let's say 50 graduates, have had a remarkable career over the 20-year period bounding from success to success. And, along with that gaining ever more self-confidence, promotions and positions of power. Another 50 have suffered bad luck time and time again and are in a bad way with a languishing career and their self-confidence largely undermined. The bulk of the people, 900, have had mixed successes. Remember that these were 1,000 equally capable people at the start.

In this thought experiment, we started with 1,000 MBA graduates of equal capability and drive. After 20 years, by chance alone, we now have 50 at the very top of their game and 50 whose careers have stalled or failed. Do the top 50 recognize the role of luck in their success? Do the bottom 50?

Most likely the top 50 do not recognize that their success was enabled by good luck, but the bottom 50 will be quick to recognize and attribute their poor performance to bad luck. Why? The self-serving bias states that “individuals tend to ascribe success to their own abilities and efforts, but ascribe failure to external factors” [2]. This deeply rooted bias leads successful executives to believe that their success is a result of their talents and discount the role of luck.

How can the top 50 be so unaware of the role of luck? Hindsight bias [3] helps the top 50 to string together a narrative to explain to themselves and others how they have achieved their success.

This was a thought experiment that I dreamt up triggered by what I have witnessed over more than two decades in a professional services firm. But, then I heard Robert Frank’s presentation at LSE [4] where he presented on key aspects of his recent book [5] and now what was hypothetical seems to have empirical backing.

Two relevant excerpts from Frank’s book: “… because the contests that mete out society’s biggest prizes are so bitterly competitive, talent and effort are alone rarely enough to ensure victory. In almost every case, a substantial measure of luck is also necessary [5].” And “success often results from positive feedback loops that amplify tiny initial variations into enormous differences in final outcomes [5]”.

Nassim Taleb, best known for “The Black Swan” offers similar perspectives in his earlier book: “Mild success can be explainable by skills and labor. Wild success is attributable to variance.” and “When things go our way we reject the lack of certainty [6]”.

So, returning to the title of this article. When Daniel Kahneman was asked what his favourite equation was, he offered: “success = talent + luck; great success = a little more talent + a lot of luck [7]”. The purpose of this article was to show that contrary to how successful executives might pronounce on their talents (including hard work, courage, etc.) being the basis for their success, the true role of luck in their success is generally understated.

What is the lesson? By recognizing the significant role of luck, we should be humbler if we are successful and less disheartened if we are unsuccessful. We should also be more deliberate in creating the opportunities for luck. As in the words of the great Gary Player: “the more I practice, the luckier I get.”

References:

[1] “The Halo Effect”. Phil Rosenzweig

[2] https://en.wikipedia.org/wiki/Self-serving_bias

[3] https://en.wikipedia.org/wiki/Hindsight_bias

[4] http://www.lse.ac.uk/website-archive/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=3669

[5] “Success and Luck: Good Fortune and the Myth of Meritocracy”, Robert H. Frank”

[6] “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets”, Nassim Nicholas Taleb

[7] “Thinking, Fast and Slow”, Daniel Kahneman