Dance With Chance

Making Luck Work for You

Spyros G. Makridakis, Robin M. Hogarth, Anil Gaba

• Publisher: Oneworld Publications
• Year: 2009
• eBook ISBN: 9781780740140
• Topic: Psychology
• Subtopic: Applied Psychology
• Index: Psychology

A gripping tale of how even experts misread the role of chance - from the stock market to doctors' surgeries - "Dance With Chance" argues that we all fall foul of the 'The Illusion of Control', meaning that we underestimate the role of luck in our lives. The authors argue that by understanding how uncertainty operates, we can make palpable improvements to our health, wealth, happiness and careers.

One

THREE WISHES FROM A GENIE

Those who have knowledge don’t predict.
Those who predict don’t have knowledge.

Lao Tzu, Ancient Chinese Philosopher

The tragic events of 9/11 are embedded in humanity’s collective consciousness. The authorities have adjusted the official death toll of 2,974 a few times, but it remains close to the original estimates that we all listened to with horror on that September day. This much is well known. All too well known.

Statisticians, however, think the real death toll is much, much higher. The official count ignores the thousands of people who, influenced by 9/11, literally gambled with their lives. Perhaps, unwittingly, you too were one of the gamblers: one of the lucky ones, that is. Let’s explain . . .

THE ILLUSION OF CONTROL

After September 11, 2001, many people feared further terrorist attacks and chose to travel by car instead of flying. To put it simply, the number of airline passengers in the fourth quarter of 2001 fell by 18%, by comparison with the last three months of the year 2000. In other words, influenced by 9/11, close to one in five travelers decided not to fly. Let’s look at some other numbers now: in 2001, there were 483 deaths among commercial airline passengers in the USA, about half of them on 9/11. Interestingly, in 2002 there wasn’t a single one. And in 2003 and 2004 there were only nineteen and eleven fatalities respectively. This means that during these three years, a total of thirty airline passengers in America were killed in accidents. In the same period, however, 128,525 people died in US car accidents. Moreover, it has been estimated that – in the year following 9/11 – some 1,600 deaths could have been avoided if people had not driven but instead carried on taking the plane as usual.¹

Why did so many people take their car instead of the plane after 9/11? The simple explanation is that, behind the wheel of your own automobile, it’s natural to feel in control. Try telling drivers that they have no influence over the skills of other road users, the weather, the condition of the road, mechanical problems, or any other common causes of accidents – and they will agree. But they still feel in control of their destiny when they drive. They can’t help it. Put them on a plane, and they think their life is in the hands of the airline pilot or, worse, a bunch of terrorists.

Psychologists call this the “illusion of control.” It makes sense from an evolutionary point of view. The desire to stamp our authority on our environment explains much of our progress as a species – from the beginnings of agriculture to missions to Mars and beyond. The problem is that we don’t know when to stop. For instance, experiments show that people think they’re more likely to win the lottery if they pick their own numbers. They also think they’ll do better in a game of chance if they throw the dice themselves. The truth is that they can make no difference whatsoever. These are games of pure luck.

In the case of the post-9/11 drivers, most of the deaths were caused by bad luck. But those who chose their cars over the plane can’t be blamed entirely for their folly, as our inbuilt illusion of control is often magnified by media coverage. Plane crashes are turned into video images of twisted wreckage and dead bodies, then beamed into every home on television screens. It’s no wonder so many of us dread flying – and did so even before 9/11. Meanwhile, the thousands of airplanes which arrive safely at their destination every day hold no media interest. This isn’t news. So even the most logical of us are led to believe that the chance of a passenger dying in an airplane accident is much, much higher than it really is.²

Car crashes, on the other hand, rarely make the headlines, unless they’re multiple pile-ups with mass fatalities (which are also statistical exceptions). Meanwhile, smaller-scale road accidents occur in large numbers with horrifying regularity, killing hundreds of thousands of people each year worldwide and seriously injuring many more. We just don’t hear about them. Again, this lack of awareness prevents our logic from over-riding our instincts.

As the months and years that followed 9/11 show, the illusion of control – magnified by media sensationalism – can occasionally be fatal. The rest of the time, it can be dangerous to our health, wealth, success, and happiness in varying degrees. After all, for every death in a car accident, there are about nine serious injuries. That’s partly why we’ve written this book – to show that we can’t predict most of what happens to us, let alone control it. But there are things we can do to minimize the negative consequences of our inability to predict. Most of all, it’s essential to understand the relative roles played by chance and our own actions in shaping our lives.

FROM ILLUSION TO PARADOX

We believe that one of the biggest challenges facing us both individually and collectively is to accept the full extent of uncertainty that surrounds our decision making without being paralyzed by hesitation.³ Being hit by a car while crossing a road, being struck by a coconut while on vacation in a tropical paradise, or getting incurable cancer is something that can happen to anyone. Yet the illusion of control makes us believe that such events only happen to others, never to us.

In this book we go beyond simply dispelling the illusion of control. Our message is both more subtle and more compelling. As human beings, we can never shake off our basic desire to eliminate uncertainty. But ironically, it’s by realizing and accepting that we don’t have control that we actually gain more control over what happens to us. This can make a big difference in the way we face the future and the decisions we take. Sometimes, we might avoid bad surprises by shaking off our illusion of control (say, by continuing to fly rather than driving). In other cases, we might be able to take out appropriate insurance to cover the risks we’ve identified (say, by taking out life insurance to protect our family in the event of tragedy, or simply wearing a seat-belt every time we travel by car).

However, the post-9/11 road fatalities suggest that relinquishing control can be even more powerful. If governments had diverted just a little of the colossal spending on increased airport security into raising awareness about the comparative risks of flying versus driving, they might have saved thousands of lives and even more serious injuries. The traveling public doesn’t necessarily need a detailed understanding of probability theory or banks of statistics. Sometimes simple facts can be sufficient. Just knowing that in 2002 not a single airline passenger died as a result of a commercial airline crash in the USA, while car accidents killed 43,005 people (and seriously injured many more), can change behavior. The beauty is that, by giving up their perceived control and placing their well-being in the hands of an airline (over which they have no control whatsoever) travelers reduce their chances of having an accident. Paradoxically, by accepting that their previous sense of control was largely illusory, they gain greater control. This “paradox of control” is at the heart of this book.

YOUR WISH IS YOUR OWN COMMAND. OR IS IT?

Imagine briefly that something very strange has just happened. Instead of revealing these very words and sentences, the act of opening this book has released a friendly genie who promises to satisfy any three wishes you desire. What will your wishes be? But wait . . . don’t answer yet. Like all the best genies, this one has a few reasonable rules to follow, not to mention a little sound advice.

First, let’s be both sensible and selfish. Your wishes should cover the long term in order to provide the most benefits for you – and you alone. Second, let’s be realistic about what we’re imagining here. Your wish can’t exceed existing physiological limits. So, no, you can’t live to the age of 500 or become twenty years younger. Third, let’s think it through and not make the same kind of mistake as Midas, the mythical king who asked for everything he touched to turn into gold. It did – including his food, drink . . . and daughter. Fourth, bear in mind that you’re not the only person to have access to a genie. (There’s an imaginary one free in every copy of this book, after all.) So, by all means go ahead and ask to become the richest person in the world. Just don’t expect to stay the richest for long, as someone else is bound to make the same request. Finally, no cheating. Your wish shouldn’t contain double demands. To be rich and famous counts as two wishes, not one. And rest assured that the age-old trick of wishing for more wishes won’t work either.

So take some time to reflect and write down your wishes below.

1. ________________________________________________

2. ________________________________________________

3. ________________________________________________

Before we reveal how your wishes compare to those of others, here’s another question: just how much control do you have over achieving your three wishes through your own actions? This time we ask you to indicate the degree of control you think you have by assigning a number between 0 and 100 to each of your three wishes, where 0 indicates no control at all (or total dependence on luck) and 100 indicates that fulfilling your wish depends entirely on your actions (and not at all on luck).

1. The control I have over achieving my first wish is (please enter a number between 0 and 100): __________

2. The control I have over achieving my second wish is (please enter a number between 0 and 100): __________

3. The control I have over achieving my third wish is (please enter a number between 0 and 100): __________

Now, you may have entered some pretty strange or unusual wishes. How do these compare with the responses of others? We’ve conducted several genie surveys – involving close to 1000 people, mainly business executives and MBA students, but also academics. Most of their answers turn out to be variations on the following four themes.

1. I wish to be happy.

2. I wish to live a long life – or at least a healthy one.

3. I wish to be wealthy.

4. I wish to be successful – for example, an entrepreneur who gets rich, an artist who becomes famous, an author who is published, a sportsperson who wins medals . . . you get the picture.

Of course, there are many requests for love too, but as this is notoriously difficult to measure, let’s steer clear of it for now.

As for the degree of control people think they have over making their wishes come true, the answer depends greatly on the wish concerned. On average, our respondents score their control over happiness at about 63%, health and longevity at around 52%, for wealth it is 55%, and for success 61%. But are these answers realistic?⁴

The answer is a resounding “no.” It turns out that we have almost no control over how long we live or how healthy we are. Certainly, we can make some valid generalizations about the types of people who last longest. Thin, active women who don’t smoke tend to outlive obese, male couch potatoes who get through two packets of cigarettes a day. But at an individual level, doctors confess that their predictions are hit or miss. What’s more, health is as dependent on chance as longevity is. Of course, people who die young or become seriously sick never believe it will happen to them. But somehow luck just isn’t on their side.

Surely, though, we must have a lot more control over our happiness, personal wealth, or professional success? Hard work, determination, education, and experience should count for a great deal. But, again the evidence available suggests that luck is almost entirely responsible for which hardworking, determined, educated, and experienced people make it in life.

BEING PREPARED

One reason why people fail to understand just how little influence they have over their own success is the media (yes, them again). We hear a lot about people who are successful, but very little about those who fail to realize their dreams. The press makes sure that we’re all familiar with the achievements of Sir Richard Branson, Warren Buffett, Bill Gates, Tiger Woods, or Nicole Kidman. While we’re dimly conscious that these people are exceptional, we rarely hear about the entrepreneurs, sportspeople, or actors who fail – or the sheer scale on which they do so. For example, did you know that in the USA there were more than 55,000 bankrupt firms and over 1.4 million bankrupt individuals in 2009? And the great majority of those involved believed it would never happen to them. In fact, nearly all aspiring entrepreneurs are convinced they will make it in a big way.

A second source of confusion is that we know from everyday experience that many physical phenomena are perfectly predictable. If we release our hold on a ball, it will fall to the ground. The sun will also go down this evening and come up tomorrow morning. And high tide always occurs exactly when it’s supposed to. So, our reasoning goes, if we can predict these phenomena with such a high degree of precision, why can’t we do the same for our own lives? Unfortunately, however, we have to realize that many events in the physical world are totally impossible to forecast reliably: things like earthquakes, tsunamis, hurricanes, and floods. When the tsunami hit South-East Asia in December 2004, killing over a quarter of a million people, the villain was not terrorists but Mother Nature herself. Yet the thousands of tourists who booked their holidays for this time could not have imagined that they were buying tickets to their own deaths.

When it comes to socio-economic phenomena, our ability to make accurate predictions drops to near zero. Who could have predicted the bankruptcy of Lehman Brothers, Enron or WorldCom, the stock-market crash of Black Monday in 1987 when stocks lost more than 22% of their values in a single day, the subprime crisis that led the world’s economies into a serious recession resulting in many trillions in stock market losses and, according to the International Labor Organization, a reduction of 20 million jobs worldwide?

Now, let’s be very clear. We’re not advocating that you should give up aspiring to success in your chosen field – any more than you should give up listening to the weather forecast or taking exotic holidays. What we are saying is that everyone should make better efforts to understand and estimate their chances of success or failure in all that they do. Such insights would reduce bad surprises and disappointments, as well as help prepare for all-too-common failure. An unsuccessful business venture, for instance, can bring invaluable experience, or might be an excellent introduction to a new career and a network of people for the future. But without a few contingency plans, these opportunities may well evaporate by the time the liquidators knock on the door.

In other words, the first step is to accept our lack of control over our environment. Although tsunamis, earthquakes, and hurricanes do not occur often, they can hit us unexpectedly and with force. The second step is to assess our chances of success or failure in a realistic way – without the influence of the illusion of control or wishful thinking. Only then can we take the third – and crucial – step of augmenting our assessment of future uncertainty to allow for the possible occurrence of events that we can’t currently imagine. (Remember, the enormity of 9/11 was unthinkable before it actually happened.) In this methodical way, we can handle risk with pragmatism and clear thinking. And that’s what this book is all about. If you need a little further convincing, ponder the implications of the following story.

CHECKS IN THE CITY

Hugo is a thirty-two-year-old trader who works for a well-known investment bank in the heart of London’s financial district, the “City.” He has been working there for seven years now, the la...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Acknowledgments
• Preface
• Illustrations
• 1. Three wishes from a genie
• 2. The ills of pills
• 3. Getting the right medicine
• 4. The chatter of money
• 5. Watering your money plant
• 6. Lessons from gurus
• 7. Creative destruction
• 8. Does God play dice?
• 9. Past or future
• 10. Of subways and coconuts: two types of uncertainty
• 11. Genius or fallible?
• 12. The inevitability of decisions
• 13. Happiness, happiness, happiness
• Conclusion
• Postscript
• Endnotes
• Index