Gary Smith explains why pessimists and optimists
are all wrong. If we have a run of bad luck it
does not mean that a good turn is about to happen;
conversely, if we have a run of bad luck, it does
not mean that it is going to continue forever. So
what’s the point of this book? The author seeks
to stop us from superstitious beliefs, the sort
that gamblers and sportsmen are very susceptible
to. Tall parents tend to have tall children and
short parents tend to have short children – but
that is not always so. One child of a pair of tall
parents may be shorter than them and another
taller; just as a child of short parents may be
taller than his parents whereas his sibling might
be shorter. Smith’s explanation is that the law
of regression to the mean – and the draw of
luck. This law applies across the board, from the
assessment of students to the picking of a company
CEO. “Disappointment is likely to be especially
acute when an outsider is brought in as CEO.
First, an outsider doesn’t know the company’s
culture and the strengths and weaknesses of its
employees. Second, the board making the hiring
decision doesn’t know the outsider as well as it
knows its insiders. The less information there is,
the more likely the gap between perception and
reality – the more likely will be regression to
the mean.’ So the CEO is not going to be as good
or as bad as he seems at the time. Fans of
Manchester United in recent years will probably
understand how this principle works. Smith says
that ‘Hot streaks and the law of averages are
both wishful thinking’. When you have a hot run,
beware, you may soon be regressing to the mean,
but Smith leaves us the encouragement:
‘Regression is a package of pitfalls and
opportunities. Avoid the pitfalls and seize the
opportunities.’ He discusses ways of doing this
in his book; and the difference between luck and
the law of regression to the mean. Best of luck.
