Randomness and Success

Ben Lorica wrote in email: "In case you missed it, Leonard Mlodinow had an interesting article a few days ago in the LA Times. [Entitled Meet Hollywood's Latest Genius, it's a] nice case study of how probability and data analysis can challenge conventional wisdom. Whether or not it changes the status quo remains to be seen. [Key points include:]

• The Illusion of Control: How much of a studio's success can be attributed to the expertise of studio executives, and how much of it can be explained by randomness? According to the article, the "quants" who have studied this question are not convinced that much can be explained by the skills of the executives.

• Information Cascade: Once a movie has been been "green-lighted" and made, can sophisticated and expensive marketing overcome the fact that the movie is bad? Marketing helps in the first few weeks, after that "information cascade" takes over."

Ben continued: "Speaking of 'experts', the article reminded me of a conversation a few months ago between Malcolm Gladwell and Bill Simmons. [Subscription required.] Gladwell, it turns out, is not a big fan of Isiah Thomas, the highly-paid, "expert" General Manager of the NY Knicks."

"Gladwell: Here's the real question. If I was GM of the Knicks, would I be doing a better job of managing the team than Thomas? I believe, somewhat immodestly, that the answer is yes. And I say this even though it is abundantly clear that Thomas knows several thousand times more about basketball than I do. I've never picked up a basketball. I couldn't diagram a play to save my life. I would put my level of basketball knowledge, among hard core fans, in the 25th percentile.
 

So why do I think I would be better? There's a famous experiment done by a wonderful psychologist at Columbia University named Dan Goldstein. He goes to a class of American college students and asks them which city they think is bigger -- San Antonio or San Diego. The students are divided. Then he goes to an equivalent class of German college students and asks the same question. This time the class votes overwhelmingly for San Diego. The right answer? San Diego. So the Germans are smarter, at least on this question, than the American kids. But that's not because they know more about American geography. It's because they know less. They've never heard of San Antonio. But they've heard of San Diego and using only that rule of thumb, they figure San Diego must be bigger. The American students know way more. They know all about San Antonio. They know it's in Texas and that Texas is booming. They know it has a pro basketball team, so it must be a pretty big market. Some of them may have been in San Antonio and taken forever to drive from one side of town to another -- and that, and a thousand other stray facts about Texas and San Antonio, have the effect of muddling their judgment and preventing them from getting the right answer.

I smiled when I read Gladwell's comment, because I've often attributed my success as a technology trend spotter to the fact that I'm watching technology "from the cheap seats," far enough away that I focus on the patterns rather than the details. (My focus on pattern recognition goes way back to my first work as a technical writer, when as a Greek and Latin Classics major, I took on the job of writing Fortran and assembly language manuals for a data acquisition processor. I didn't have the faintest idea at first what the technology was about, and approached them like I would a Greek manuscript, identifying the words I didn't understand, and piecing together a broad understanding of how the parts went together, then improving with multiple passes till I got it right. It's a bit like the way a small snip of a hologram contains all the information in the entire image, but gets clearer the more of the original you have.)

I'm much more in sympathy with the Gladwell interview, about the value of common sense informed by a suitable distance from the subject versus "too much" expertise than I am with the LA Times assertion that chance explains success as well as expertise. Both play a huge role in my experience -- not to mention persistence and effort. As Thomas Jefferson remarked, "I'm a great believer in luck and I find the harder I work, the more I have of it." And as Louis Pasteur remarked, "Fortune favors the prepared mind."

But still, the LA Times article on the statistical nature of success is thought provoking, especially with hit-driven fields of endeavor. From the article:

Arthur De Vany, recently retired professor of economics and a member of the Institute for Mathematical Behavioral Sciences at UC Irvine...likes to illustrate the oddities of the film business by comparing films to breakfast cereal. If breakfast cereals were like films, he says, each time we visited the store we would find a large selection of new cereals, and only a few brands that survived from our last trip. Most of these cereals would languish unnoticed, but crowds would gather at certain parts of the aisle, scooping up the popular brands. And yet, within a few weeks, or at most months, even those popular brands would vanish from the shelves. And so our typical cereal breakfast would consist of a product we had never before tried, and very well might not like, but bought because we heard about it from friends or read of it in the newspaper cereal section.
 

That's precisely how films behave in the marketplace. If we hear good things, we go and perhaps tell others; if we hear bad things, we stay away. It's that process—the way consumers learn from others about the expected quality of the product—that De Vany found is the key to the odd behavior of the film business today. Economists call it an "information cascade."

"People's behavior is simple," De Vany says, "but in the aggregate it leads to a complex system, a system bordering on chaos."

What I find a bit perplexing is that the article fails to address the fact that the "information cascade" isn't random. Whether it's a hit movie or a much-forwarded video on YouTube, that word of mouth information cascade is driven by the ability of the product to excite people by its quality, its novelty, or some other factor that is not at all random. Just because there is also an element of luck at any point in the information cascade doesn't mean that there is no cause, just that the cause is very difficult, perhaps even impossible, to pinpoint in advance. (For a great popular explanation of phenomena like this, from earthquakes and forest fires to wars and the size of cities, Ubiquity, by John Buchanan, which explores how complex systems reach a "critical state" in which a small event sets off enormous consequences, and how, despite the difficulty of predicting these consequences, they occur with a regularity that is rigorous in its pattern. The math that underlies this world of ours is deeper and more subtle than most people suppose.)