



According to CNN, the winning numbers for the $626 million Mega Millions jackpot are 8, 20, 14, 17, 39 and Mega ball 7. Sorry if that's not your set of numbers. It didn't match any of mine, either.

In the 1970s, however, a man won big in the Spanish lottery with a very simple and straightforward strategy. In his case, he chose a lottery ticket specifically for its ending number of 48 because, as he explained later, “I dreamed of the number 7 for seven straight nights, and 7 times 7 is 48."

Laugh if you like, but as business executives we still have one heckuva lot to learn about randomness, and in fifty or a hundred years people are likely to look back at some of our incentive systems, “results only” evaluations, and other 21st Century business practices with a similar level of disdain.

The good news is that by nature, we human beings are “explainers.” We try to explain why things happen, in terms of cause and effect. We observe an effect, and then we try to use reasoning or judgment to determine its cause. In evolutionary terms, this kind of “logical pattern recognition” is one of the talents responsible for the human race’s dominance of the planet. It’s a hallmark of our curious, problem-solving intellectual capability. Scientific discovery itself is predicated on our constant searching for causes.

But the bad news is that not every effect we observe can actually be traced to a cause, at least not very easily. The lottery is pure luck, for instance, but luck is also involved in nearly every other endeavor, and our faith in the cause-and-effect rationale often blinds us to this fact.

When pilots were being trained in WWII, one of their instructors noticed in reviewing individual pilot performance records that whenever he complimented a pilot on a good flight, the pilot’s next flight was usually worse. But whenever he scolded a pilot on a bad performance, his next flight was usually better. What he had discovered, however, wasn’t a new method for applying “tough love” to the training of pilots. What he had observed was simply the statistical principle of regression to the mean. Each pilot had a certain innate flying ability – his average, or mean flying ability – but his individual flights varied from day to day, some days better than this average and some days worse. So when a pilot had an extremely good flight, it was likely to be above his average ability, while a bad flight was likely below his average.

Most things in life depend, at least a little bit, on luck. On any given day, even the worst football team in a league can upset the best one, and even the smartest, most innovative business initiative can be defeated by a turn of bad luck, whether it’s an unforeseen competitive action, or an accounting oversight, or a biased headline, or even bad weather.

Unfortunately, however, our predilection to search for causes, even when there are none, often leads us to counter-productive conclusions, because the truth is that business outcomes are much more random and unpredictable than most of us realize. We think that by paying people for results, and only for results, we are managing more effectively. But this means that a bad manager who is lucky will get promoted to a more important role, while a good manager who is unlucky isn’t promoted. Two or three bad managers promoted in a row, because of random outcomes, and pretty soon the business really will hit some bumps.

The other day I met with a business executive charged with elevating her company’s customer satisfaction score over the next two years, from last place among its half dozen competitors, to first place. And you know what? For her, this is an excellent career situation! Much better, if your company is paying on results, to walk into a terrible situation than a good one, because your bacon could be saved purely by regression to the mean. Of course, a customer satisfaction score is somewhat less random than a student pilot’s single flight, being itself the product of a survey of many customers. But even surveys can go up and down based on random, unforeseen events, which might include economic cycles, news stories, or – increasingly – cascades of social sentiment, conveyed on any number of social media platforms.

Our talent for pattern recognition and cause-and-effect reasoning, along with our natural human biases, can easily undermine our rationality and taint the way we interpret things. In business, most managers are biased to believe the effects they generate through their own actions are greater than they really are. Almost 90 percent of Chief Marketing Officers, for instance, believe that customers trust their own company’s brand as much as or more than they trust competitors’ brands!

(And the truth is, of course, that any number could have won the Mega Millions lottery for you last night. Just because you chose a number that commemorated your anniversary, your children’s ages, your cell phone number, or the street address of your childhood home doesn’t mean it was any less likely to win than any other number – but it certainly wasn’t more likely to win, either. If anything, choosing a completely random number – a number that is totally unrelated to anything in your life or anyone else’s, perhaps a number chosen by a random number generator – is probably a better overall strategy. This is because any slightly non-random number increases the chance that, if it does win, you would have to share the prize with someone else who also picked it.)