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What Playboy Playmates can teach you about making accurate predictions

accurate predictions

In 2006 ten Playboy Playmates were asked to make stock picks.

Half the Playmates beat the S&P 500 while less than a third of professional money managers were able to.

Via The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing:

In 2006, Tradingmarkets, a company that helps people trade stocks, asked ten Playboy Playmates to select five stocks each. The idea was to see if they could beat the market. The winner was Deanna Brooks, Playmate of the Month in May 1998. The stocks she picked rose 43.4 percent, trouncing the S& P 500, which gained 13.6 percent, and beating more than 90 percent of the money managers who actively try to outperform a given index. Brooks wasn’t the only one who fared well. Four of the other ten Playmates had better returns than the S& P 500 while less than a third of the active money managers did.

How?

The answer is easy — unlike more skill-based activities, a great deal of picking stocks is about luck.

And therein lies a mistake we’re all prone to.

As Michael Mauboussin explains in his fascinating new book, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing we are often terrible about distinguishing when challenges are about skill and when they’re about luck, leading us to make less accurate predictions.

 

So how can you make more accurate predictions?

First, look at the event you’re trying to predict and take the time to think about how much skill is involved vs luck. This will determine what evidence you should focus on.

Via The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing:

When we make predictions, we often fail to recognize the existence of luck, and as a consequence we dwell too much on the specific evidence, especially recent evidence. This also makes it tougher to judge performance. Once something has happened, our natural inclination is to come up with a cause to explain the effect. The problem is that we commonly twist, distort, or ignore the role that luck plays in our successes and failures. Thinking explicitly about how luck influences our lives can help offset that cognitive bias.

Whether skill or luck is more central will determine whether you should lean on general statistics, or whether you should strongly consider the specifics of this particular event.

Via The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing:

When skill plays the prime role in determining what happens, you can rely on specific evidence… In activities where luck is more important, the base rate should guide your prediction.

The takeaway:

  • When luck is the bigger factor (like playing the lottery) go with the statistics: You have a 1 in 10 gazillion chance of winning. Ignore the specifics; just because it’s you playing and you’re playing your favorite number doesn’t mean much.
  • When skill is the bigger factor (a fist fight) ignore the general statistics and look at the specifics of the individual case (it’s Batman in the fist fight and Batman always wins.)

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do things right

 

What does it take to get people to do things right?

It’s an important question.

And the answer is not as hard as you might think.

But as you’ll see, a lot of people had to die before someone realized what works.

 

1) Make a checklist

I’ve posted before about the power of checklists and Atul Gawande’s excellent book on the subject.

We’re all prone to simple errors.

And in some fields these errors are quite costly. In medicine, people can die:

Via The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing:

Peter Pronovost is an anesthesiologist and critical-care specialist at Johns Hopkins Hospital. Pronovost had noticed that about forty thousand people in the United States died each year from infections caused by central line catheters— intravenous tubes placed in patients as part of their treatment. These deaths typically showed up as “complications” from surgery, but were completely preventable. Yet the number of people dying from these infections was equal to the number of women dying from breast cancer each year.

Checklists are powerful for straightforward tasks like this — but only if people use them.

How often did doctors use them after Pronovost put them together?

The compliance rate was only 38%.

Thirty-eight percent.

That’s what happens when you ask very smart people to do something that saves lives.

What hope is there for less intelligent people on average tasks?

So how do you implement a checklist so that people actually use it?

 

2) Make it easy to comply through preparation

Pronovost put all the required elements for the checklist activities in to one accessible place.

Boom — compliance rose to 70%.

Via The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing:

He quickly realized that a major part of the problem was that the supplies were scattered in different places, requiring doctors and nurses to gather gloves, masks, drapes, and tubes from various locations. He created a “central line cart” so that everything a doctor would need was readily available in one place. Compliance rose to 70 percent…

But 70% isn’t 100% — and in this case we’re talking about human lives.

What does it take to get people to do things right — all the time?

 

3) Put someone in charge of compliance

You get lazy. You get overconfident in your abilities. Lists can seem demeaning, like you’re second guessing yourself.

So even when there’s a list and it’s easy to use, you can ignore it.

How do you overcome this?

Reminders are powerful.

And something in charge of reminding you — whether it’s a person or an alarm on your phone — can make all the difference.

Via The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing:

He had no doubt that the doctors wanted to take excellent care of their patients and that they could readily enumerate the items on the checklist if asked. The problem was that the physicians simply didn’t focus on the mundane tasks. So Pronovost took the unusual step of placing the nurses in charge of compliance. Hospitals, like many other organizations, are hierarchical, and doctors are at the top of the heap. But Pronovost sat down with the staff and explained what he was trying to achieve and why it was so important. At first, the doctors saw it as an effort to undermine their authority, while the nurses worried that it would open them up to criticism. But Pronovost convinced all parties to try the new approach. Within a year, the rate of infection dropped nearly to zero. 

 

So what do you do now?

  1. Make a checklist.
  2. Put everything needed to execute it in one place ahead of time.
  3. Make sure you have a reminder — someone or something to bug you.

If it can save lives, it can certainly make a difference in your life.

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