Customer Reviews

Dance with Chance: Making Luck Work for You

5 star:		(4)
4 star:		(3)
3 star:		(1)
2 star:		(2)
1 star:		(1)

 

 

According to a Hebrew aphorism, "Man plans and then God laughs." That sums up my own attitude toward "luck." I prefer good luck to bad luck but can seldom (if ever) predict -- much less control - either. Many people claim, "the harder I work, the luckier I am" but is it really luck? Are there not people who succeed without much (if any) effort and others who fail despite maximum effort? In a word, yes. Spyros Makridakis, Robin Hogarth, and Anil Gaba explain that "to dance with chance is to accept the role and importance of chance and to take advantage of the opportunities it creates while avoiding its negative consequences...giving up illusory control actually increases control [i.e. `the paradox of control'] and results in substantial benefits [whereas] the illusion of control pervades almost all aspects of our lives and can have serious negative implications for our well-being." So, the book's purpose is to help its readers to avoid costly mistakes and to help them "exploit the role of luck in the most important aspects of [their lives]"and to "seek both beauty and opportunity and take some life-enhancing steps of [their] own."

All well and good but how? Makridakis, Hogarth, and Gaba recommend what they call a "Triple A Approach": Accept the fact that the world is uncertain and therefore the future cannot be predicted, although possibilities can be identified; assess the nature of the uncertainty by using all of the information available to identify and (if possible) to measure the degree of probability of each of the aforementioned "possibilities"; and then augment the assessment to include contingencies not previously considered plausible. If I fully understand this approach (and I may not), its primary purpose is to help all illusions of control by revealing the role that chance (or "luck") plays as we proceed each day into an uncertain future. In this context, I am reminded of Lily Tomlin's observation that reality "is a collective hunch."

On Page 256, the authors provide a list of the principles behind all the stories they share in the first part of the book and then assert that, when it comes to making decisions, the importance of taking uncertainty into full account is paramount. The "Triple A Approach" offers one strategy. Another "is to support intuitive hunches (or `blinking') by thinking wherever possible - remember the chess grand masters and their years of painstaking practice. As for the remarkable properties of simple modeling (or `sminking'), decision-makers tend to under-exploit them, while relying excessively on the opinions of experts who are immune to the consequences of their expertise."

This is by no means an "easy read" but it generously rewards those who read it with appropriate care. (I felt obliged to re-read portions of several chapters and expect others to do the same.) Of greatest interest and value to me is how effectively Makridakis, Hogarth, and Gaba challenge, indeed repudiate a number of well-entrenched assumptions about chance (or "luck"), business forecasting, contingency planning, "creative destruction," superstition, and the subject of Chapter 12, "the inevitability of decisions." As I finished reading this book, I recalled a prayer attributed to Reinhold Niebuhr, one with which I conclude this review:

"God grant me the serenity
To accept the things I cannot change;
Courage to change the things I can;
And wisdom to know the difference."

This book tells you about how luck plays a large and complex role in a person's wealth, health and happiness. In that context it is in accordance with the growing literature that explains the extent of its role and how people often tend to misperceive it. However, it does not stay there. Therein lies the book's originality. It includes sections where it gives actual advice on what to do and how to behave in order to dodge the clearly present but misinterpreted risk in many aspects of one's life. In that sense, it has a more complete argument such that one could actually change for the better the way one decides about their wealth, health and happiness.

About the writing; as one would expect from a good non-fiction book, it is engaging and for the most part entertaining thanks to its numerous provocative anecdotes and counterintuitive real life examples (like the death of King Charles II or the story of the unhappy rich). The three writers are established professors in the academia, yet their storytelling was far more modest than I would have expected and encountered so far in books that deal with similar subjects. I think this adds value to the book's objectivity and shows its respect for the reader's own ideas and experiences about the subject. Instead of pushing their ideas to the readers, the authors seem to try an approach where the readers are pulled into the story and shown different features of chance and its effects on our everyday lives.

It is a book to which you would go back from time to time and encounter the insights that you had missed the previous time.

The title made me initially skeptical, but this quickly turned out to be one of the best books I have read on the theme of dealing with chance in our everyday life and career. It has a clear thesis, our "illusion of control" -- that more of life than we realize is outside our control, and that being more realistic about this fact, while at first sight psychologically unsettling, in fact increases the "genuine control" we have over our lives. The authors focus on medicine, investment and business (after surveying potential readers to discover their interests-- what a radical idea!). Within these broad topics they cover a lot of ground, staying "on theme" and spending more time on real data and checkable historic illustrations and less time on fiction or personal anecdote. The authors, serious academics in different fields, maintain an easy to read style while staying in touch with academic literature. Finally, they actually have a bottom line conclusion that is neither trite nor ridiculous -- I copy it at the end of the review. These positive features put it way ahead of other books on similar themes. I have few substantial criticisms of what they explicitly say, though some reservations about the overall picture of chance that a reader might implicitly draw from the book. And, since many ideas touched upon briefly have been treated in more detail in other non-technical books, they could have been more helpful by saying explicitly "for more on this topic read ....".

To me the most memorable idea (Chapter 12) was their description of decision making as thinking or blinking or sminking. Here thinking means trying to take everything into account (often too difficult); blinking means instant gut reaction (often unreliable); and they invent the word sminking to mean "using some simple explicit rule". They give some cute illustrations (marital happiness, credit scores, ...) and advocate its use more widely. Anyway, to a reader of this review I propose a smink. Read Chapter 12 first; if you enjoy it, read the whole book; if not, forgedaboudit!

Here's their treatment of investment. They tell the story of the collapse of Long Term Capital Management and of hedge funds, they relate forecasts that turned out badly, they emphasize that historically equities have outperformed other instruments in the long term but not necessarily over the next 15 years; that the best way to invest in equities is via index funds with low fees; that most investors do much worse than the index for various reasons they list, and warn of the dangers of relying on emotion rather than following a consistent strategy. This is all stuff -- standard amongst academics -- that every investor needs to know. Indeed it has all been said before, most famously in A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Revised and Updated) (and the reader curious about where a suggested balanced portfolio comes from can consult the more analytical Unconventional Success: A Fundamental Approach to Personal Investment) but it's so vital to have objective voices raised against the self-interested clamor of the financial complex that it's well worth repeating. This book's two chapter account is one of the most convincing I've read.

Now financial markets have a unique feature, that (for instance) buying an individual stock rather than the index is like "betting against the spread" in football -- you are trying to predict the future better than the consensus. But the book doesn't emphasize enough (in my opinion) the point that this feature is special to investing and analogs -- it's one extreme of a spectrum of chance. A different extreme is, say, choosing a spouse, which is similar to investment as regards long-term unpredictability and importance to one's life, but is very different in that one is not competing to do something better than the consensus. For the declared goal of teaching the reader how to think about chance, an exercise of the form: [here are 10 situations, place them on a spectrum from "similar to investment" to "similar to choosing a spouse"] would be more engaging than telling many stories about Wall Street.

More briefly: the chapters on medicine form a plea for evidence-based medicine, making the point that (both historically and currently) many treatments or screenings have been in widespread use without clear evidence of their effectiveness. The chapters on business criticise management theory gurus and applaud the "creative destruction" view of capitalism. They propose that managers should ignore fashionable theories, remember that over the long term prices of standardized goods/services go down relative to wages, which can only be dealt with via (obviously) increasing productivity and via the somewhat vaguer notion (p. 125) "manage people to generate creative destruction". Other chapters describe (in an oddly coy way) the authors' own research on the ineffectiveness of prediction (this research featured prominently in The Black Swan: The Impact of the Highly Improbable), followed by advice on "how to predict, if you must": first look at historic data, then imagine drastically different future scenarios, then ask other people for their 95% confidence intervals, form a consensus of such, and double the length of the interval!

Anyway, the book's conclusions (p. 256) are worth knowing, so here they are. (But don't be misled into thinking the book is full of "complex statistical models", because it isn't).

The future is never exactly like the past.
Complex statistical models fit past data well but don't necessarily predict the future.
Simple models .... predict the future better ...
Both statistical models and people have been unable to capture the full extent of future uncertainty and been surprised by large forecasting errors ....
Expert judgement is typically inferior to simple statistical models
Averaging (whether of models or of expert opinions) usually improves forecasting accuracy.

In this era of 'manufactured figures' this book uncovers so many real facts that have been ignored by the mainstream media....from authors who set out to select items to enhance their point of view.
Also, the authors have carefully and methodically blown the guru propositions where they find an effect and look for a simple, and often single, cause.
It is immensely readable, an unexpected benefit from three academics. I have hilited many phrases, and have over 25 small post it notes in my copy. Have already drawn liberally from it to include in my Powerpoint presentations to CEO's of small businesses.
This book is a must read for editors and researchers in the media....specially those who like to allocate blame and credit based on flimsy evidence....or none at all.

This is an easy to read synopsis of statitical situations we are often blind to, unaware off, or just don't take the time to consider their impact. The author(s) use real life examples helping the reader to understand the implications of everyday situations we all enclounter and more often than not, have lost the time to think about and apply. Its the application of research that makes this ead a must for decision makers at all levels, professionals, and all the rest of us ordinary work folk.

As the title suggests, the book is about how chance affects our lives. The authors cover three specific domains: health, wealth, and management.

1) Health - they conclude people should stay away from doctors unless they feel sick or become pregnant. They base this conclusion on the fact that medical opinions change over time and are affected by vested interests. I believe their view is somewhat exaggerated. There are dangers in following this viewpoint.

2) Wealth - they conclude that experts are good at explaining past performance but not at prediction. We've all heard about the fact that fund managers don't perform any better picking stocks than monkeys throwing at a dartboard... If someone could predict the future, then he wouldn't need to be selling advice :-)

3) Management - They conclude it is not clear that management gurus can explain the past, let alone predict the future. They examine the companies that were the subject of the best-selling book "In Search of Excellence" by Tom Peters. Of the 32 "exemplary" companies identified from 1982, 5 went bankrupt and 6 merged or were bought out. Of the remaining 21, 12 did better than the S&P500 and 8 did worse. So even if we excluded the merged companies, 13 did worse and 12 did better - the pattern of pure chance. Another bestseller entitled "Built to Last" by Jim Collins listed 18 visionary companies from 1994. In terms of stock market returns in the 7 years ended 2007, 9 did better than the S&P500 and 8 did worse. Again, this is the pattern of pure chance. The companies were average. What does this say about the so called experts??

The authors also talk about how business theories rise and fall - Reengineering (Michael Hammer), Management by Objectives, T-Groups, Theory Z, the Managerial Grid, the Systems Approach, Experience Curves, PIMS, the BCG Growth Matrix, Total Quality Management, and One-Minute Management, etc... They all produced initial excitement that eventually led to disappointment and obscurity.

Overall the book provides some interesting statistics - but the ideas are not new...

I really enjoyed this book and thought the authors did a good job of explaining the fundamental uncertainty in the world and described in pretty rich detail many examples of how it affects our lives. My only nitpick is the subtitle which I am sure was the work of the publisher "Making Luck Work for You". Although this book does a really good job of describing what you can do to minimize the negative impacts of the uncertainly it so persuasively describes, even the authors admit there is not really all that much you can do. This book is mostly about chance and uncertainty and not really that much about making luck work for you.

Recommended.

Borrows from many of the current thinkers in the risk/chance arena. Great examples and applicability to many facets of life. The authors also delve into the science behind the thinking which is welcome. Good read.

nothing much new in it, especially after you have read Black Swan and Halo Effect

A missed opportunity. The book picks the low hanging fruits, like why we are so bad at gauging chance, but some of the suggestions are either fantasy, like the questions to ask your doctor (he doesn't have the time, is not payed enough and the research is not there anyway) or mental shortcuts like the "random walk" theory which offers no explanation why stocks should always go up in the long run, but instead bases the recommendation in past history. I can't believe Nassim Taleb endorsed this.

I wish they gave the book a narrower scope and a lot more solid research.