Streaks, from Joltin’ Joe to Mutual Fund Managers

I have an essay on the Harvard Business Review blog entitled Streaks, from Joltin’ Joe to Mutual Fund Managers. It grew out of a presentation I recently gave at a conference at University of Michigan on disentangling skill and luck in a variety of complex systems.

I spoke about using performance streaks to help tease apart skill and luck, specifically in two areas: hitting streaks in baseball and mutual funds that beat the market year after year. Some context to get you started:

Using probability, it is easy to see that if you have a large enough population doing things in a mediocre way for a long enough time, you’ll always get some streaks — think monkeys, typewriters, and Shakespeare. And it’s also readily observable that performance streaks are everywhere: We have Joe DiMaggio’s 56-game hitting streak, Paul the Octopus’s seven-game prediction streak for Germany’s games in the 2010 World Cup, Ken Jenning’s 74-game Jeopardy streak, and Bill Miller’s 15-year streak when his mutual fund beat the S&P 500.

While we’re quick to attribute such success to consummate ability, are the streaks we see in the real world longer than would be expected by mediocre performance combined with some luck? Are these streaks more frequent, longer, and generally more impressive than what probability would have us believe?

The rest is here.