Tuesday, December 29, 2009

Process versus Outcome

We are coming to the end of the first decade of the millennium. If I have to think of one lesson that I have learnt over the last decade, then it has to be the one on 'process versus outcome'.

To illustrate this concept, let me cite an example from Michael Lewis' book Moneyball:

Paul DePodesta, a former baseball executive tells about playing blackjack in Las Vegas when a guy to the right, sitting on a seventeen, asks for a hit. Everyone at the table stops, and even the dealer asks if he is sure. The player nods yes, and the dealer, of course, produces a four. What did the dealer say? "Nice hit." Yeah, great hit.

Similar to this anecdote, in our daily lives, we measure performance by results. After all, results are what ultimately matter - they add to bottom line. Evaluating the underlying process is subjective and hard. So, we simplify our lives, by making the critical mistake of assuming that good outcomes are the result of a good process and bad outcomes are the result of a bad process. Besides, the only ones voicing against doing so are mostly people who have 'failed' in their endeavours.

But alas, reality is far more vicious than a game at Vegas. We all wish life was as simple as a game of blackjack where each card about to open up is one of the few known options. But often we are faced with a myriad of possibilities. Our folly is in picking a process that has the possibility of delivering a rare but fatal outcome. On top of that, a few repetitions of the process starts giving us a false sense of security - we start feeling that the sorts of things that happen to others will not necessarily happen to us. And then if nothing bad happens then we kick our self for being too worried.

Nassim Taleb, the author of Fooled by Randomness, offers a thinking tool called 'alternate histories' that I find very useful:

The concept of 'alternate histories' is similar to the many-world interpretation in quantum mechanics, which considers that the universe branches out treelike at every juncture; what we are living now is only one of these many worlds. Taken at a more extreme level, whenever numerous various possibilities exist, the world splits into many worlds, one world for each different possibility - causing the proliferation of parallel universes.

If we apply the 'alternate histories' way of thinking then the guy at the blackjack table got busted in one of the alternate worlds indicating that he was following a poor process. Even though this way of judging matters is abstract and counter intuitive, it is a good way to evaluate our process. After all, in the long haul, a good process gives us the most reliable way of raising our chances of a good outcome.

  • Good process, Good outcome - Deserved success
  • Good process, Bad outcome - Bad luck
  • Bad process, Good outcome - Dumb luck
  • Bad process, Bad outcome - Poetic Justice

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