The illusion of control

About three years ago, a group of senior executives enthusiastically told me that the massive success of their business was driven by strategic clarity, a relentless focus on the few things that matter and, finally, a culture of powerful execution. They were right about the nature of their results: Rumor had it that a money printing press was in full operation in the bowels of their factories. They were wrong, however, about the cause of their results: Within two years, the business came to a grinding and unexpected halt. After a painful restructuring, the business has recently been sold, the workforce has been reduced and profitability still seems a distant dream.

This tragic example is called the illusion of control. It means that we assign too much credit for our success to our own skills and at the same time underestimate the significant role of luck. Is there a way to not only overcome, but even use this phenomenon to improve performance?

I think there is, but first we need to understand the nature of the illusion of control. The formula for achievement is both profound and simple:

achievement = skill + luck

For example, the gains of a roulette player completely depend on luck: His skill is limited to choosing a number or a color, moving a pile of chips, waiting for the feedback and then repeating the process. As simple as that. On the other hand, the achievement of a chess master is mostly determined by his or her skill. Yet, even during a chess match, luck can still play a significant role: A spicy Thai meal from the evening before may upset her stomach, and as a result deep thinking may be compromised by ungainly bowel movements at essential moments during the match.

There are two reasons why we habitually overestimate our skill and underestimate the role of luck. The first reason is the Dunning-Kruger effect. This is a cognitive bias in which unskilled individuals suffer from illusory superiority, mistakenly rating their ability much higher than average. This bias is attributed to a metacognitive inability of the unskilled to recognize their mistakes. It means that if we are completely ignorant and unskilled in a certain area, we often overestimate how well we will perform in this area. A TV master chef may make the task of cutting carrots look easy. Only when you hear that it requires a full year of advanced master chef training to learn how to properly cut vegetables do you realize there is much more to cutting vegetables than meets the eye. This is the Dunning-Kruger effect in action. Most of us will have no problem to recognize this effect in other people. Think of those surveys where more than 50 percent of people consistently believe they are part of the top 10 percent of safe drivers. As a general rule, if you encounter the Dunning-Kruger effect in others, keep in mind the words of Mark Twain: “Never argue with ignorant people. They will bring you down to their level and beat you with experience.”

The second reason is cargo cult thinking. The term cargo cult was first coined after World War II. During the conflict, several remote island-based airfields were established for military purposes, baffling the indigenous, primitive population. Often, limited or no contact was established between the islanders and the more modern military forces. When the military finally left the islands, the original inhabitants tried to recreate the airfields, using bamboo, stone and other available material. Hence the name cargo cult thinking: If we build it, they will come.

Cargo cult thinking is not limited to the minds of our primitive brothers and sisters: It has a prominent place in modern business thinking as well. We often believe that if we simply emulate the visible effects of achievement, the real achievement will follow automatically. For instance, Elizabeth Holmes, the embattled CEO of Theranos, started wearing a black turtleneck to mimic Steve Jobs in order to practice reality distortion of her own. As recent events have shown, what she actually did was mixing cause and effect: The rooster which crows in the morning doesn’t cause the sun to rise. Consequently, cajoling the rooster to crow earlier will not make a longer day.

Knowing this, what can we do to improve decision making and make more accurate judgements about future achievements? The answer is baseline thinking: Always start your endeavor with an objective baseline to estimate the chance of success and then honestly assess your own skill level to judge your actual chance accordingly. For example, according to the 2010 McKinsey report ‘Perspectives on merger integration,’ 70 percent of all mergers and acquisitions don’t achieve their intended goals. If your company has caught a serious case of acquisition fever, start with a 70 percent failure base rate. Then ask yourself if your skills warrant to move up or down the failure rate scale. Naturally, this exercise will be both refreshing, enlightening, and sobering. In many cases, it will save the company a lot of money as well.

The illusion of control makes people gravitate to projects, activities and investments where achievements are mainly driven by luck and not so much by skill. The absence of skill and reliance on luck is a dangerous folly and is the main reason why smart people sometimes do stupid things: The fact that you have lottery winners is no excuse for buying lottery tickets. Instead, apply baseline thinking to find ways to purposely move to a place where skill massively trumps luck. Fertile land beats better seeds all the time….

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