The Lowdown on Luck
It’s a common expression in our lexicon. Obviously, on a gut level we have some sense of the importance of luck—that is, until things go our way. Suddenly, we relegate luck to the cheap seats as we bask in the spotlight, prepared to take full credit for our superior decision-making.
Take the Quaker Oats Corporation, for example.
In 1983, the CEO of Quaker Oats, William Smithburg, sampled some of an up-and-coming sports drink and decided to acquire the company. That beverage was Gatorade, and it was the beginning of a goldmine for Quaker Oats.
So when Smithburg decided to buy Snapple in 1994 for $1.8 billion, he was unchallenged from within his organization. This was the Gatorade guy, after all; surely he knew what he was talking about. Media pundits disagreed, lambasting the decision before the deal was even struck.
Did Smithburg’s superior decision-making prove them wrong? Well, no.
Fast forward 3 years and Quaker Oats was desperately unloading Snapple at a loss of $1.5 billion dollars. To this day, it is widely seen as one of the worst decisions in business history— quite a legacy.
So how could Smithburg screw up so badly? How should we understand what happened at Quaker Oats, polar opposite results from the same CEO?
Nobel Laureate Daniel Kahneman has the answer. And for that answer, we must turn to the Israeli Air Force.
For a long time, the Israeli Air Force trained its pilots with the assumption that negative feedback trumped positive. After all, when a trainee pilot was punished for a botched maneuver, the next attempt tended to go better. When that same trainee executed a maneuver perfectly and received praise, their next attempt was generally not as good.
Kahneman was the first to realize that this wasn’t a case of the stick working better than the carrot. It was simple statistics at play.
We all love those magic moments where we outshine our normal capabilities. But there’s a reason your average is your average. So chances are that a better-than-usual outcome is almost certainly going to be followed by something lackluster. The opposite is true as well; if you find yourself performing much worse than usual, the odds favor an eventual upswing.
It's an old concept in statistics. In the 19th century, Sir Frances Galton found that the children of unusually tall people tended to be a little shorter than their parents, and unusually short parents tended to have children taller than themselves. He referred to this phenomenon as “regression to the mean.”
Kahneman takes this concept beyond height and into the messier real world.
No matter how well you prepare, most enterprises involve a degree of chance. A brilliant business idea may still fail in a lousy economy. An untalented singer might still net a record deal by happening to charm the right person at the right time.
In his book Thinking, Fast and Slow, Kahneman repeatedly demonstrates that much of our lives are shaped by random events beyond our understanding or control.
Was William Smithburg’s gut decision to buy Gatorade a stroke of leadership genius? Or did he happen to taste the right stuff at the right time?
Kahneman was once asked about his definition of success. He famously replied, “Success = talent + luck, and great success = a little more talent + a lot of luck.”
In other words, luck is not some bit player. It’s an integral part of the human experience, whether we chose to acknowledge it or not. Kahneman showed luck, good or bad, pretty much guarantees that regression to the mean is always waiting to take center stage.