The oft-asked question, “Is it better to be lucky than smart?” has an obvious answer. It’s better to be lucky.
Luck can overcome any obstacle. You are standing in front of a firing squad, blindfold over your eyes and last cigarette burned to the butt, when a meteor falls from the sky and kills the sergeant the instant before he can shout, “Fire!” Your bookie’s goons are looking to break your legs so you let your last dollar ride on number thirteen until you’ve broken the bank. There’s no problem that can’t be solved by amazing luck. You are too hung over to open the SAT booklet, much less read the questions, so you mark the answer sheet at random and, by sheer chance, get a perfect score.
Less dramatic problems require less luck. Some mutual funds go up, some go down; you happen to pick the one that’s going up more years than the others. You get job offers from two companies and happen to pick the one that does not go bankrupt three years later. Your best friend’s cousin happens to be the perfect match for you.
If you’re lucky, life is good.
If luck is so important to success, then it’s worth making the effort to understand what luck is.
You don’t have to rely on luck to be lucky. Good luck can be arranged. You can maximize your luck if you understand probability, manage risk, and make the odds work for you.
The more you know about luck, the more you can have.
What is probability? It’s not a statement about the world as such. It’s a statement about what you know about the world.
Imagine that I flip a coin in front of two people. It falls heads up, but I raise my hand briefly to give only one of them a peek at the outcome. What are the odds that the coin is heads? For the one that has not seen the coin, it’s fifty percent. For the other, it’s a hundred percent.
The world is not different for the two people. The coin does not change under my hand for one. The only difference is that the two people have different knowledge. One person has perfect knowledge of the outcome of the coin – that it has fallen heads up.
The other person, though, has a lot of knowledge as well. He knows that a coin has two sides. He knows that a real coin has a head on one side only. He knows that coins never fall on their edge. He knows that I’m a fair person and will not have substituted a two-headed coin; or that if I’m unfair, I’m devious enough that I’m equally likely to have substituted a two-tailed coin. Everything that he knows about the world tells him that the odds of the coin falling heads up is one in two, not one in six or one in a hundred.
When we have a real problem in the real world, we seldom have perfect knowledge. The extent to which we know about the world is the extent to which we can calculate the odds accurately. The extent to which we lack knowledge is the extent to which we must take a chance.
Thus, knowing more not only tells us which choice is better, it tells us how much we should bet.
If a man asks you to give him money so that he can invest it, but refuses to tell you any more about what he intends, you have no idea how much you are likely to win or lose. But if the man tells you that he intends to wager it on one spin of an American roulette wheel, you know that there is a one in thirty-seven chance that you will get a thirty-five-fold return. A bad bet so you should not give him a significant amount of money.
The more you know, the smarter you can bet. The more you don’t know, the more likely that you’ll be disappointed. No problem if you’re betting ten bucks; a big problem if it’s your life savings.
You get knowledge either from knowing past outcomes or from knowing how the world is structured.
You can watch a roulette wheel spin ten thousand times and see that number thirteen comes up about one thirty-seventh of the time. A mathematical theorem called the “Weak Law of Large Numbers” says that the more times the outcome of a probabilistic event is observed, the more accurate your estimate of the probability. It’s a “weak law” because it’s not certain. A fair coin could land heads up ten times in a row (it’ll happen about one time in a thousand). It’s about “large numbers” because it’s more lawful as the numbers get larger. The chance of that fair coin landing heads up ten thousand times in a row is infinitesimally small – it’s not going to happen.
This means simply, that the more experience you have with any decision, the better you’ll know the odds of the outcomes.
But you can also know the odds of a roulette wheel by knowing how the wheel works. The wheel is spun in one direction, the ball thrown in the other direction – and it’s not in the casino’s interests to rig the game – so there is an equal chance of the ball ending up on any number. There are thirty-seven numbers (one through thirty-five plus zero and double zero) so the chance of each number is one thirty-seventh.
If you’re smart, you can know the odds more quickly by understanding the structure of the world than by accumulating experience. However, that entails more risk. The world is complicated and it’s easy to make mistake about how it is structured. Especially when the world includes other people. You can know the odds of filling an inside straight in a poker game much more easily than knowing the odds of your opponent bluffing.
The real trick is knowing how much you know about the world. It’s dangerously easy to believe that a single idea (e.g., government is wasteful) tells you everything that you need to know to make a good decision. The world is complex. Any decision based on a single idea is likely to be wrong.
For complex real-world problems, those of us who are not geniuses are better off relying on experience – estimating the likely outcome of a decision from what has happened in similar cases before.
But even relying on experience can be dangerous.
People are notoriously bad at learning from experience. They keep making the same decision over and over, even when it has never worked for them in the past. They convince themselves that, this time, the situation is different for some obscure reason. Or they assure themselves that the alternative choice (which they have never tried) couldn’t possibly work, either.
As well, people have notoriously bad memories. They remember the few times that they went to Las Vegas and won and forget the far more frequent times when they returned with empty wallets.
Even when you rely on experience, luck favors the wise over the foolish.
Even people who are smart enough to avoid the pitfalls cannot always rely on personal experience. We do not live long enough to gain sufficient personal experience for many real-world problems, like choosing a marriage partner.
When our own knowledge and experience are insufficient, there are alternative solutions. We can substitute other people’s knowledge or experience.
We can compensate for a shortfall in our own knowledge by relying on expert advice. We can compensate for a shortfall in our own experience by relying on traditions based on the accumulated experience of generations of ancestors.
But we still have to be smart about selecting our alternative sources of knowledge. Some experts aren’t. Some traditions no longer function in today’s world.
Thus, our original question poses a false dichotomy. Smart people are lucky because they are better able to estimate the risks of making one decision over another. Especially if they are aware of their own limitations.