Archives

lindley (1)

Business Insider

Lindley Estes is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

Share
RSS feed of this blog

Trying to make sense of it all? Don’t bother

NEEDING an operating system for a new line of personal computers, a group of IBM employees flew to Seattle in August 1980 to see young entrepreneur Bill Gates.

Gates said he couldn’t provide the system but referred the group to a programmer friend. The friend was contacted, but the two sides couldn’t make a deal. So one of the IBM employees went back to Gates.

Gates knew of another operating system that was available and offered it to the IBM worker. But the worker encouraged Gates to get it. So the young Gates did, for about $50,000. He made a few changes and licensed the operating system to IBM.

The new operating system was no better than what was already available. But IBM’s growing base of users led software developers to write for it, which led to more computer sales for IBM.

And thus Microsoft became a household name, and Gates started on his journey toward becoming one of the richest men in the world.

Leonard Mlodinow, who teaches about randomness at the California Institute of Technology, recounted that story in his new book "The Drunkard’s Walk: How Randomness Rules Our Lives."

"Despite whatever visionary or business acumen Gates possesses, he might have become just another software entrepreneur rather than the richest man in the world," Mlodinow writes.

The title of the book comes from a mathematical term describing random motion, like the kind of path a person who has had a few too many cold ones might take.

The delightful book shows that humans frequently see order in chaos and attribute meaning to randomness. Our misunderstanding of basic probability laws also leads us to faulty conclusions about items such as reliability of positive HIV tests or guilt of criminal defendants.

"The Drunkard’s Walk" uses numerous examples to puncture false assumptions made about business, entertainment, sports and more. It shows that we look up to people who have found success, when often that success is due to random luck. Here are among its examples:

Legg Mason mutual fund manager Bill Miller has been widely lauded for beating the Standard & Poor’s 500 index 15 straight years. But with all the fund managers out there, random chance alone dictates that someone would beat the index for that long. Mlodinow shows that a mutual fund’s past success doesn’t predict future returns.

Health officials study communities with high cancer rates to determine the cause, when in reality some areas are bound to have more disease clusters than others. A company’s failure is attributed to the CEO, who is fired despite having little control over the problems. Intelligence analysts are blamed for missing "obvious" clues that lead to tragedies such as Sept. 11, 2001, when really those clues are clear only in retrospect.

A wine that is highly rated or a book that wins awards is celebrated. But if these results are tested again by judges unaware of the rankings, conclusions differ. Prize-winning books are rejected by publishers, and top-ranked wines are deemed average. That’s why a book penned by Stephen King under a pseudonym doesn’t succeed until people know King is the author.

Roger Maris was a slightly better-than-average power hitter who never hit more than 39 homers in a season before slugging 61 in 1961 to break Babe Ruth’s record. Many have tried to explain this. Mlodinow’s conclusion? Odds are that in baseball’s long history someone would have the string of luck Maris had in 1961.

Bruce Willis was just a struggling actor when he auditioned for a role in ABC’s "Moonlighting" in 1984. Network executives didn’t think Willis fit the part, but he got it. And thus a no-name actor with a dream became a multi-millionaire, while other equally talented no-name actors with dreams remained unknown.

"The Drunkard’s Walk," which also includes much mathematics and history of probability theory, isn’t saying that skill and carefully crafted plans play no role in life. Indeed, one of the most crucial indicators of success is the extent to which a person refuses to give up in pursuit of his or her goals.

But readers will likely come away with a healthy dose of skepticism, which may lead you to ponder things such as:

That recent drought? Surely random chance would dictate a string of dry days. The rash of crime? Maybe it’s not explainable. Your fantasy baseball hitter’s slump? Perhaps just a bunch of bad luck. Is the boss really any smarter than you, or was she just promoted due to random occurrence? Can you really attribute that 50-point move in the stock market to anything meaningful?

In summary, Mlodinow’s excellent book offers readers a new mental framework with which to look at the world.

Permalink: http://news.fredericksburg.com/businessbrowser/2008/05/18/trying-to-make-sense-of-it-all-dont-bother/

  • daveduke

    Bill,

    Man you’re a good writer. I liked this book review… your style is very engaging and you kept me interested the whole way through.

    I think you are destined to be in the right place at the right time one of these days. ;o

    Dave