Drunkard's Walk - Leonard Mlodinow [1]
In sports we have developed a culture in which, based on intuitive feelings of correlation, a team’s success or failure is often attributed largely to the ability of the coach. As a result, when teams fail, the coach is often fired. Mathematical analysis of firings in all major sports, however, has shown that those firings had, on average, no effect on team performance.2 An analogous phenomenon occurs in the corporate world, where CEOs are thought to have superhuman power to make or break a company. Yet time and time again at Kodak, Lucent, Xerox, and other companies, that power has proved illusory. In the 1990s, for instance, when he ran GE Capital Services under Jack Welch, Gary Wendt was thought of as one of the smartest businessmen in the country. Wendt parlayed that reputation into a $45 million bonus when he was hired to run the troubled finance company Conseco. Investors apparently agreed that with Wendt at the helm, Conseco’s troubles were over: the company’s stock tripled within a year. But two years after that Wendt abruptly resigned, Conseco went bankrupt, and the stock was trading for pennies.3 Had Wendt’s task been impossible? Was he asleep at the wheel? Or had his coronation rested on questionable assumptions—for example, that an executive has a near-absolute ability to affect a company or a person’s single past success is a reliable indicator of future performance? On any specific occasion one cannot be confident of the answers without examining the details of the situation at hand. I will do that in several instances in this book, but more important, I will present the tools needed to identify the footprints of chance.
To swim against the current of human intuition is a difficult task. As we’ll see, the human mind is built to identify for each event a definite cause and can therefore have a hard time accepting the influence of unrelated or random factors. And so the first step is to realize that success or failure sometimes arises neither from great skill nor from great incompetence but from, as the economist Armen Alchian wrote, “fortuitous circumstances.”4 Random processes are fundamental in nature and are ubiquitous in our everyday lives, yet most people do not understand them or think much about them.
The title The Drunkard’s Walk comes from a mathematical term describing random motion, such as the paths molecules follow as they fly through space, incessantly bumping, and being bumped by, their sister molecules. That can be a metaphor for our lives, our paths from college to career, from single life to family life, from first hole of golf to eighteenth. The surprise is that the tools used to understand the drunkard’s walk can also be employed to help understand the events of everyday life. The goal of this book is to illustrate the role of chance in the world around us and to show how we may recognize it at work in human affairs. I hope that after this tour of the world of randomness, you, the reader, will begin to see life in a different light, with a deeper understanding of the everyday world.
CHAPTER 1
Peering through the Eyepiece of Randomness
I REMEMBER, as a teenager, watching the yellow flame of the Sabbath candles dancing randomly above the white paraffin cylinders that fueled them. I was too young to think candlelight romantic, but still I found it magical—because