Will and Mike’s 2023 Advice

One of the biggest ideas from 8 full years of writing this blog is Michael Mauboussin’s success equation.

Outcomes are a mix of skill and luck. Persistence is a measure of skill: coaches making the playoffs, sales staff hitting targets, or personalities in the news. Skills are things which can – and should – be controlled.

But sometimes life is luck too.

He’d (my dad) seen enough of the big time, so to speak, and we went to lunch one day, and I said to him, “I think I’m going to try this comedy thing. I think I’m going to give it a shot. Do you have any advice for me?” And his big gut talk to me was, “You know what? I think you have the skill, but it takes a lot of luck. If you don’t make it, don’t worry about it. You can just try something else.” Like, don’t worry if you fail, because it’s a crapshoot anyway. And so, from that point, I was like, Oh, I’m just playing the lottery here so I might as well just go have fun.

Will Ferrell, Sicker in the Head

That’s our advice for the year ahead: Work hard on skills and have fun with luck.

Does the bundle explain it?

Defaults are a design tool to frame thinking. One designed-default is mean reversion. For most situations, said Cade Massey, “Try regression to the mean on for size and see if that can explain it.” Another is to start with the base rate: what typically happens in situations like this? During the Summer of 2021 there were many comparisons of vaccinated and unvaccinated Covid infection rates. This was a case of base rate neglect.

Mean reversion and base rates are good starting ideas because they prevent our Narrative Spin Drives from jumping into high-output mode. For instance, there’s an annual NFL video game known as Madden NFL. There’s also a Madden curse. If someone appears on the cover they have a terrible season after. It’s happened to eighty-two percent of the athletes!

Or it is base rates and mean reversion. To earn the cover rights, a player must have an excellent season, and their “success equation” benefited from a few lucky bounces. That happens. But bad luck happens too.

To add to the value of starting with base rates and mean reversion we can add “The Bundle”: the idea that a JTBD is a collection of things.

Marc Andreessen talked about the bundle of education: a dating scene, knowledge, social interactions, signaling, potential professional connections, cheap financing, and so on. Part-of-the-reason education innovation hasn’t gained distribution is that online only addresses parts of the bundle. It’s hard to date or build friendships on a video call.

Another bundle is the meal. Every meal is a combo meal: social interactions, nutrients, calories, taste, and so on. We can see bundles further yet. Food is more than the sum of its vitamins and nutrients. Eating an orange is more than theVitamin C, fiber, and sugar.

Work is a bundle too. Economist Tyler Cowen often notes that part-of-the-problem with Universal Basic Income is that it doesn’t address The Bundle. From NPR:

“Companies, like those in the tech industry such as Google and Apple, built enormous offices and put them all right next to each other in Silicon Valley and the office expanded what it was in people’s lives. They became like a second home. They had fancy food, concerts, dry cleaning, free meals.” – Stacey Vanek Smith, Planet Money, August 2021

Okay, a confession. I love Ted Lasso. It’s my favorite show since Parks and Rec. What I admire about Lasso is that he sets a tone (assuming for a moment it’s a real football club but this ethos may exist in the real production). Players begin the day and “Believe”. That’s what starting with base rates, mean reversion, and the bundle does too. Starting with those prompts prevents the Narrative Spin Drive from generating primarily palatable explanations.

One thing I’ve changed my mind on is reading fiction. Fiction, like Ted Lasso, appeals to us because it is a fake premise sharing a human truth.
Also, the idea of online education needing distribution is from Alex Rampell, a colleague of Andreessen, who asks: Will disruptors gain innovation before innovators gain disruption? This is the “TiVo Problem.”

April 2022 update. Taylor Pearson highlights Kris Abdelmessih’s post.

The person in your network you might not get along with…

Purchases are admissions of value. The buyer values the item more than the seller. For minor purchases we mostly go with ease (see Peloton). For larger purchases we quantify earnings per share or dollar per square foot or miles per gallon. In these big areas, the largest gains come with the largest differences in value, and all value is perceived value.

But not just value between the seller and the buyer, but between the seller and all the buyers, the market.

“This is why you talk about the importance of a network. The person in your network that you might not get along with is probably the best person you want to be aggregating your opinions with. We just recorded another podcast this morning and George and I had the same picks on all but one of the games. We had been talking about the games for five months. We had whittled down our differences and come to a consensus, which can be great, but in life you need people who disagree with you.” – Eric Eager, Deep Dive, September 2021

Technology changed what is your network. Investors trade ideas on Twitter. Gamblers text group chats. Discords and Reddits and on and on. Organizations create accurate forecasts when leadership creates a culture to argue well.

Eager’s comments come in the context of gambling, a nice field for the success equation. One way that a gambler may evaluate their skill/luck split is to look at closing line value. That is, does the market think more or less like them? Another way is to talk to their network.

Three star recruits

The success equation notes that results are combinations of skill and luck. Some parts of life have a larger luck outcome than others.

So, to improve, we look at the skill slice. Poker’s appeal is this idea. Play more hands with positive expected value. But not every sport is as clean as poker. Football, for instance, is messier.

One way to work around the football outcomes is to focus on the football inputs. For instance, recruiting is important, how many highly rated recruits does a coach get each year? That seems like a nice input as the percent of “Blue Chip” recruits correlates well with wins.

Ah, but incentives are tricky.

“There are stories you hear, anecdotal but I’ve heard more than a few, about how different coaches may have a financial incentive to have higher ranked recruiting classes, and they may be involved in the process of lobbying to get guys higher stars.” – Bruce Feldman, Wharton Moneyball, September 2021

Incentives are like the weather. Just like a bunch of measurable aspects (temperature, pressure, wind, humidity) combine to form ‘the weather’, a bunch of measurable aspects of a job combine to form the incentives. A football coach has incentives to win, but also to pay his daughter’s tuition and take his family on vacation. And it’s not just football coaches, it is all of us.

What to do? Work is a combination of financial and non-financial rewards. Alchemy offers a way to tweak the non-financial rewards. Culture works well too, and that comes from the top.

Here’s a story on auto incentives (thanks Stephen!). Incentives were one of my favorite ideas, get all 62 as a daily email drip on Gumroad. Find them on Amazon too.

The many games of Jeopardy

January 14, 2020. Double Jeopardy Daily Double:
What is Chad?

Jeopardy is incredibly instructive. It has come up a number of times on the blog. The best summary is the June 2021 NPR Planet Money podcast.

First, Jeopardy is not a trivia game. Jeopardy is a television show. It’s a game within a game within a game within the game of life. Life is a game in the sense that there are rules (hard like physics, soft like psychology), consequences, and randomness.

Penn Jillette notes the gaminess. ‘Winning’ a game like Jeopardy or The Apprentice, wrote Penn, meant being interesting not being champion. His victory is selling tickets to the Penn & Teller theater show, not to make the best beans.

Like all games, the game maker can change the rules. Jeopardy is a pretty clean operation, but games like Survivor change the rules all the time. Governments change rules like “interest rates” or “bailout”. Regulators change rules too, maybe that’s their chief job?

Until 2003, Jeopardy contestants could only win five times. Then the rules changed and Ken Jennings showed up to win seventy-four games. Jennings has a very particular set of skills. Jeopardy was one of the few American shows Jennings watched growing up in South Korea and Singapore. But it wasn’t the clue collection, it was the cadence.

Jeopardy really isn’t a trivia game so much as (per the NPR episode) “a really crappy computer game.” Just as Jeopardy is a game within a game, there are three games within the game of Jeopardy too.

Before addressing the three games, it’s helpful to remind ourselves about the skill and luck spectrum. The “success equation” is to disentangle what games within games are skill based and which are luck based. Skill based games, wrote Michael Mauboussin, are games where some set of actions consistently returns some set of results. Another way to find skill based games is to ask: can you lose on purpose? Most games are a mix.

The outcome of this arrangement, says Mauboussin, is the “paradox of skill”. As each game within a game optimizes, the impact of luck grows.
Kawhi Shot

Jeopardy’s Three Games.

Jeopardy is a series of sequential games. If a contestant wins one, they get to try at the next, then the third, until the process resets. The first game is the buzzer.

Buzzer. “A crappy computer game”. There are a lot of ways to practice the buzzer, the most common among fans is the toilet paper roll holder.

During IBM’s Watson appearance some fans thought that the computer was too fast, though the engineers note the accommodations. Humans, wrote David Gondek, have the ability to anticipate when the buzzer window will open.

Like a basketball free-throw is preceded by a foul, winning the buzzer is precedes a chance to answer.

Trivia. Jeopardy screens contestants via a written test, then (a randomly selected) audition. Everyone that’s on Jeopardy is already good at trivia and getting much better is difficult. Not only that, Jeopardy as a sampling issue: it’s only full of people who really want to be there and do well.

The potential contestants (by now) know that not all trivia is important. The United States (capitals, geography) and its history (presidents) are important. Literature and Science are important. Professional wrestling and heavy metal are unimportant. Jeopardy’s trivia topics are wide but not deep, except for a few areas.

This used to be a data problem. Besides watching each night, how might a potential contestant figure out what mattered? Since 2004 there is a J-Archive, a fan curated collection of all things Jeopardy. Thanks to the internet, this part of the game within a game has shimmied from the luck end of the spectrum to the skill portion.

Though luck still matters. James Holzhauer only knew Sadie Lou was a nickname for Sarah Lawrence College because he and his wife considered ‘Sarah’ as a baby name.

In the season before James Holzhauer, the top ten Daily Double bets ranged from seven to fifteen thousand dollars. Holzhauer raised that to eleven to twenty-five. Holzhauer nearly doubled the Daily Double bets.

It’s not just the betting. Daily Doubles are tactical. If a player finds one early in the round, they won’t have enough to bet to make it ‘a true Daily Double’. Bet too little of a big stack and it lets the other players ‘stay in the game’. Bet too much of a big stack too late and a lead will evaporate.

It was gambling that let Holzhauer to reframe the Daily Double. Think of a coin flip. What is the price and payout someone would play? A dollar to win a dollar is kinda boring.

Or not? At our house we play this dice game called Left, Center, Right. At the start, each player has three chips and they roll three dice, one for each chip. If the dice say left or right, a player must pass a chip left or right. Center and the player adds a chip to the pot. A player can also roll a dot and they keep that chip. It’s a fun game, especially for the younger-non-gaming-gamers. But there’s no skill. The “successes equation” of LCR is: have fun.

The bet a dollar to win a dollar coin toss is meh. What about bet a dollar to win two? That is interesting. That’s how Holzhauer saw Daily Doubles. It cost a dollar to win a dollar but rather than the payout being skewed the odds were.

Jeopardy seems simple. It’s fun to feel smart, that’s part of the big game too, and play along at home. Like poker’s appeal maybe there’s more to it. What is, a richness of thinking?

Timestamps in the episode:
A jarring style, First 20 years, Trivia’s paradox of skill, Finding Daily Doubles, J-Archives, Betting Daily Doubles.