Why Smart People Confuse Luck With Skill

0:00Why is luck so underrated as a factor? Why like why don't we think about it more? And why do we tend to think about it the wrong ways? Because as Annie Duke said, everything in life either is skill or luck. It's either a decision you made or it is chance. And we spend so much time thinking about our decisions, we rarely think about the chance element. And when we do, it's usually to preserve our good feelings about ourselves. It's a self-serving bias.

0:27We tell ourselves like, oh, there's nothing I could do that was just bad luck, even though it likely was a bad decision. We tell ourselves... that we're brilliant and we're so smart, even though maybe we benefited from good luck. Why do we seem to have such a hard time thinking about luck and fortune, and why do we avoid doing so? Well, I think there's a few reasons. For one, there's a legibility issue. It's unclear how much of what happens in our lives is ultimately within our control, and how much is just a factor of circumstance.

0:59Like that's a blurry line that we often don't have a clear sense of what is what. And to get clarity around that line, we have to ask honest questions of ourselves, which are quite uncomfortable, which is how much control do we have over our own lives? How much can we affect in our own lives? And that doesn't feel very good. We don't like to admit a lot of those things. On top of that. Our brain's natural tendency is to ascribe meaning and value to good fortune or bad.

1:28We operate based on the just world hypothesis that if something good happens to us, it must be because there's something great about us. Or if something bad happens to us, it must be because we did something wrong. And ultimately, this can lead us into one of two traps. There's the fatalism trap, which is everything is luck. I have control over nothing. So why even bother and try? Or you have the self-serving delusion, which is I earned everything.

1:52There is no luck in my life. I'm pretty awesome. Don't even bother me with this bullshit. The fatalism trap removes our responsibility to improve our own lives, and the delusion trap protects our ego and prevents us from learning from our failures. We briefly covered some of the Western thought around luck, and we landed on the ancient Chinese framework of Sansai, which is heaven luck. It's the genetic lottery, the ovarian lottery, what you're born into, and the The earth luck, which is the broader environmental context that you put yourself in, which is generally determined by a handful of very high leveraged decisions you make throughout your life.

2:31And then there's the human luck, which is your ability to navigate each choice, each decision on a day-to-day basis to maximize your probability of achieving your goals. If life is a game of poker, then heaven luck is the cards that we get dealt. Earth luck is the table we choose to sit down and play at. And human luck is the choices that we make as we play. All three have a very profound effect on our outcomes. Heaven luck we have zero control over.

3:01Earth luck we have some control over, but on a very macro broad level. And in human luck, we have full control over our decisions. When it comes to heaven luck, there's generally a temptation to ascribe some sort of inherent value based on where we were born, the circumstances we were born into, how we grew up. And the funny thing is, is that it works against us in both cases, whether we were born into really good circumstances or we were born into really bad circumstances.

3:31So if we're born in the really great circumstances, there's a tendency to experience some sense of guilt of like, what did I do to deserve this? Why was I blessed with all of these privileges and benefits when I didn't earn anything that the other people around me had to work really hard for? Now, while it's useful to see the discrepancies and the benefits that maybe we were born into... kind of just an ever-present sense of guilt is not very useful or productive.

3:58Ultimately, we should take all of the things that we've been blessed with and try to leverage them to help others. If you were born with a particularly large amount of heaven luck, then I would say you have a moral duty or responsibility to leverage that heaven luck to distribute some of the benefits that you've received to as many people as possible. Now, on the flip side, if you were born into a situation with very little heaven luck, then that doesn't really change the fact that you are responsible for the outcomes in your life.

4:28It may not be fair that you were born into West Africa instead of Norway, but even if you were born there, it is still your responsibility to make the most of that situation that you possibly can. So heaven luck tells us a lot about the circumstances from which we came, but they don't really tell us about what we should do. And because ultimately the longer we're alive, the more our individual decisions play into our long-term results, it is hard to say that heaven luck really.

4:56should necessarily matter a whole lot to us at all. Our takeaway in this episode is that the goal with heaven luck is simply to become aware of it and to develop some sense of gratitude around it. And the way we develop that sense of gratitude is to remind ourselves and take perspectives of all of the potential realities that we could have been born into, but we were not. So while there may be things about our lives that we feel bad about today, but we're Surely you can imagine an infinite amount of worse possible lives that you could have lived, but you're not living.

5:28And because of that, gratitude is accessible in any moment, at any time, to any person. Now this brings us to earth luck. which is a set of broad environmentally-based decisions that we each have to make throughout our lives. And the result of those decisions is that it either increases or decreases the surface area for good things to happen to us. For example, if I aspire to be a famous television actor and I'm trying to start my acting career in Boise, Idaho, I'm probably going to run into a lot of bad luck, or at least I'm going to have very little good luck.

6:06But if I move to Los Angeles and I surround myself with Hollywood and hundreds of other aspiring actors and producers and screenwriters, I am increasing my surface area for something serendipitous to happen to me that I can leverage and take advantage of and benefit from. So there is a class of decisions throughout our lives that greatly influence the probabilistic outcomes of hundreds, if not thousands of other decisions that happen down the road.

6:33The job or career you decide to pursue, the city that you decide to live in, the partner that you decide to marry and spend a life with. All of these things are one-time decisions that not only will greatly influence thousands of other decisions, but in many cases, they will set the context and basis of all of those thousands of decisions. And so maximizing earth luck is really just about understanding yourself, your goals, and what is the best environment to place yourself into that is going to maximize the opportunity of achieving those goals.

7:06This happens with... The relationships you choose to build, the networks you choose to enmesh yourself into, the environment that you choose to live in, all of these things have outsized impacts on all of the other decisions that you make, but also the decisions that are foisted upon you in the first place. Now, what's interesting is that earth luck is kind of the first luck that there is some research on how you can develop skills to expand it. So, for example, developing good social skills can expand your earth luck.

7:38If you are better able to meet and talk to and connect with new people, it's going to open doors for you wherever you go. in situations that doors might have otherwise been closed. Another skill that we talked about is simply having an open mind. Being open to more consequences or more experiences seems to allow people to draw connections and find opportunities and environments that people who are a little bit more closed-minded literally don't even see in front of them.

8:08In fact, some researchers have even gone as far as measuring luck in people based on how much they're aware of in their environment. how much they pay attention to, and how quickly they act on opportunities once they spot them. And then once you spot those opportunities, this is when human luck comes into play. Because even the best opportunities in life, there's always going to be a chance of failure. Nothing is ever 100% and nothing is ever 0%.

8:34There is always some probabilistic distribution of outcomes that you are setting up bets on. when you decide to pursue them. And because every decision you make has a probabilistic outcome, it means that you can't necessarily judge the quality of your decisions based on the quality of your results. You can move to LA to try to make something happen, but even if nothing happens, it doesn't mean that moving to LA was a bad decision. You can marry the partner you're in love with and be extremely happy with them for many years, but that doesn't necessarily mean it's a good decision depending on their traits and qualities and personality and the situations that they place you into over the coming years.

9:15Now, we have to be careful around this because we have all sorts of cognitive biases that prevent us from judging our decisions objectively and accurately. We have a self-serving bias, so we like to take credit for all the good things that happen and blame bad luck for all the bad things that happen. We have loss aversion, which causes us to overestimate the negative impact of failure and therefore not take a chance even when the odds are in our favor.

9:40Andy Duke and I talked about all sorts of different things. methods and ways that you can kind of counteract these biases and try to make better decisions consistently. And she raised a great point that it's, we're always doing kind of this probabilistic thinking underneath the hood. It's just what we experience as intuition is our subconscious doing some of the statistical analysis and placing bets accordingly. Okay. But the problem is, is that our intuitions under the hood are not super accurate.

10:11So the best way to make these decisions accurate is to take the implicit intuitive decision making and make it explicit, to actually write it out, try to forecast the results of a major life decision, try to see all of the contingencies and path dependencies and what the actual cost of failure looks like. Because once you do that, not only do you get more objectivity and more clarity around the decision itself, but it creates a form of accountability.

10:40You can go back and look at old decisions that you made and spot blind spots, spot biases, spot things that you didn't consider that you didn't look for. Find patterns of mistakes that you consistently make when you try to make decisions. Hey, everybody, that's it. The clip is over. This comes from the Solve podcast. You can get the whole chapter and it's sitting right here.