Dunning-Kruger Effect - Is Success Mostly Luck?



ORIGINAL POST

Posted by Ed 36 days ago

According to @thetweetofgod, intelligence looks in the mirror and sees ignorance; ignorance looks in the mirror it sees intelligence.

 
 
The Dunning-Kruger effect posits that dumb people are too stupid to know they are dumb. They are not perplexed by difficult situations but overconfident — not knowing what they don’t know.
As few people believe they are stupid, or a bad driver, a more relatable component of Dunning-Kruger is incorrectly believing one area of skill translates to another.

I suffer massively from this. I’m smarter than your average bear when it comes to marketing, so I’ve come to believe that makes me an expert on pretty much anything.

 
 I don’t know much about physics but constantly reference Galileo despite knowing little besides the fact that he dared challenge the church.
 

There is evidence of this all over the marketplace. Great P/E guys believe they would make great VCs and vice versa. Hedge fund managers believe two years of above-market returns means they are also great operators.

 To disabuse anybody of this notion, take them to a Sears.
 
Billionaires running for president, actors starting skincare lines, and tech CEOs founding media firms. Being rich also naturally makes you a great film producer.
 

Masayoshi Son created $64 billion in shareholder value, mostly through deft acquisitions. Mr. Son can also boast of perhaps the best venture investment in history, $20 million into Alibaba that became $100 billion.

 
That investment is tantamount to Michael Jordan hitting a grand slam on his first at bat wearing a Birmingham Barons hat.
 

Mr. Son has mistaken luck in venture investing for the ability to responsibly allocate billions based on a gut feeling. The size of SoftBank investments, relative to the diligence, now looks stupid, if not negligent.

A writedown on an investment in a dog-walking app may have been avoided had someone in the SoftBank diligence team taken the time to discover they were investing $300 million in … a dog-walking app.
 

Conflating luck and talent is dangerous. As I get older, I’m struck by how big a part luck played in my life, and how much I mistook it for skill, well into my forties.

The Pareto principle shows that even if competence is evenly distributed, 80% of effects stem from 20% of the causes.
 

Not recognizing your blessings feeds into the dark side of capitalism and meritocracy: the notion that success is a choice, and that those who haven’t achieved success are not unlucky, but unworthy.

This leads to regressive policies that further reward the perceived winners and punish the perceived losers based on income level.
 
The most recent example of our belief that poor people are guilty: The US now has the fourth-lowest tax rate in the world, and billionaires have the lowest tax rate of any cohort.
 
 
https://www.profgalloway.com/third-base 


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