The Limits of Performance and the Universal Laws of Success

Once upon a time, while surfing the interweb, I was served a tweet recommending a book called The Formula: The Universal Laws of Success. I knew the tweeter to be a thoughtful guy so I clicked the link.

Then, on the Amazon page, I saw Nassim Taleb, author of The Black Swan, had given the book an endorsement. Anyone who follows Nassim will know that he is generous with his criticism and sparse with his praise.

I’d never heard of Barabási before or read any of his previous work. Which is to say, I had no direct experience of the quality of the man’s work. And yet, the combination of those two endorsements was somehow strong enough for me – I bought the book.

I belabor the details of my purchasing decision because it is just the kind of seemingly inscrutable process that Barabási tries to shed light on. Why did I buy the book? My interest in the subject matter was tickled, and the endorsements fueled my decision. In the case of this book, two recommendations were enough. But would one have sufficed?

Barabasi’s work tries to answer questions like this and others that seek to untangle the web of performance, quality and social cues on the outcomes we see in the world. Questions like:

What is the value of a single positive review?
How much does attending an Ivy League school contribute to one’s success?
Is a social media influencer who pays for followers wasting resources, or do they possess hidden knowledge?

In The Formula, Barabási distills his findings into five distinct “laws”:

Performance drives success, but when performance can’t be measured, networks drive success.

Performance is bounded, but success is unbounded.

Previous success x fitness = future success.

While team success requires diversity and balance, a single strong individual will receive credit for the group’s achievements.

With persistence, success can come at any time.

One of my favorite examples of these laws at work is the story of famed artist Jean-Michel Basquiat and his lesser-known collaborator, Al Diaz. Both were talented artists, but when objective measures of success were absent, the social network and external factors played a significant role in determining their respective levels of recognition.

The disparity of their success highlights the importance of networks and social connections when performance cannot be objectively measured. In the art world, where personal taste and subjective factors heavily influence success, it was Basquiat’s relationships and connections that ultimately propelled his career. He was able to forge connections with influential figures in the art scene, such as Andy Warhol and gallerist Annina Nosei, which significantly boosted his visibility and reputation.

On the other hand, Diaz, despite his talent, did not obtain the same level of access to influential networks. As a result, his career did not reach the same heights as Basquiat’s. This example underscores the first law in Barabási’s book: Performance drives success, but when performance can’t be measured, networks drive success.

In cases like Basquiat and Diaz, where there is no objective measure of success, an individual’s position in their network and the strength of their connections become critical factors in determining their achievements.

Diaz and Basquiat

Performance is a Rare Case

All of Barabási’s laws were intriguing, but for me, it is his second law that continues to assert itself as a valuable lens through which to examine our modern world.

The second law states that, performance is bounded, but success is unbounded.

In essence, there are numerous fields where our performances are quite similar but our sucess is not.

In fact, one of the key insights from the book is that true performance measurement is more of a special case. It’s far more common to find competitions where performance can be measured, but to a limited and imperfect extent. But even in those rare cases where performance can be measured, the results we receive from them are highly dispersed (more on this later) and as soon as we move away from domains where performance can be measured precisely, things become fascinating rather quickly.

Barabási provides examples of wine tasting and classical piano competitions as areas where either performance is bounded, as in the case of piano competitions where everyone plays the piece flawlessly, or our ability to distinguish between performances is limited, as with wine tasting, where people can’t consistently agree on superior wines.

In the world of wine tasting, Barabási argues the evidence suggests that high-level performance is not possible to measure objectively. In fact, expert tasters consistently hold diverging opinions on the quality of a particular wine, leading to success being driven more by social factors such as reputation, networking, and marketing. In this case, the actual performance of a winemaker is often not the determinant of their success. He writes:

“It’s not as if the judges were ignorant amateurs – they are the top wine tasters of the world. Yet, in the face of such remarkable inconsistency, you may wonder how we can trust any of their opinions. Indeed, if these judges can’t agree with themselves, how can we expect them to agree with one another? In wine competitions, they don’t. In 2005, Robert Hodgson, a statistician at California State University, analyzed the results of sixteen major U.S. wine competitions and found that ‘the probability of winning a gold medal at one competition is stochastically independent of the probability of receiving a gold medal at another competition.’ In other words, winning gold at one competition doesn’t increase your chance of winning a gold at another.”
Barabási, The Formula: The Universal Laws of Success

These are areas where our intuition tells us that performance should matter, and it does, but it doesn’t determine the winner. In such cases, we decide the winner based on other subjective criteria.

Success is Distinct from Performance

In our minds, success and performance should be linked, which is why we seldom differentiate between someone’s success and their performance. For Barabási, however, they are two very distinct and measurable concepts, each with its own unique properties.

Success is, by its nature, a social phenomenon, with its rewards contingent upon the dissemination and utilization of information among people. In the age of mass media and social networks, this as become an even more exponential phenomenon.

This distinction between performance which is linear and success wich is exponential aligns with Nassim Nicholas Taleb’s framing of the transition from linear to exponential domains as moving from Mediocristan to Extremistan. As we move away from areas with objective performance measurement, the interplay between performance and networks becomes increasingly crucial.

Consider the example of tennis players from Barbasi’s research. Tennis offers a relatively objective measure of performance through rankings, win-loss records, and head-to-head matchups. However, even in such a performance-driven domain, success is often influenced by factors beyond raw skill or talent.

In the world of tennis, the unbounded nature of success can be uncovered by examining the economic rewards achieved by players. For instance, two tennis players with comparable rankings and performance levels might experience vastly different levels of economic rewards. One player may secure lucrative sponsorship deals, attract media attention, and have a strong fan base, resulting in substantial financial gains. This player’s success may be amplified by their marketability, charisma, or personal story, which resonates with fans and sponsors.

Barabási further shows that, even for tennis, a linear improvement in skill doesn’t necessarily yield a proportional increase in rewards. This implies that a player who may be merely 20% better than their counterpart can attain rewards that far surpass what the next best player obtains.

Moving away from tennis to areas where performance can’t be measured, success and social phenomena start to interac in even more powerful ways. These cases often exhibit self-reinforcing feedback loops or ‘preferential attachment’ to use the technical term (as seen with the Basquait example). Success enhances perceived performance, and perceived performance attracts more social success, further perpetuating the cycle. Hence why those people paying for followers may not be as sad and crazy as we think.

Extremistan and Mediocristan Implications for Career Choices

One key takeaway from the work of both Barabási and Nassim Nicholas Taleb is the need to remain cognizant of the landscape you are competing in. The world of Extremistan, where success is skewed and influenced by factors beyond performance, demands a particular kind of awareness. Thus, it is worthwhile to cultivate realistic expectations in these domains, as they present unique challenges that call for a nuanced understanding of what it truly means to succeed.

For example, in most service professions where local prominence is enough, such as plumbing, the competitive landscape is considerably more forgiving. Exceptional talent and luck are not the sole determining factors of success in such fields, allowing individuals to thrive on the merits of their work without facing the daunting pressures of global competition.

However, when one aspires to become a tennis star or an internationally acclaimed artist, the game changes. It becomes crucial to recognize the considerable role that exceptional talent and luck play in reaching the pinnacle of success in these areas – often, both are indispensable.

By understanding the nature of the field we play upon, we can establish appropriate goals and adopt the right mindset to traverse the path to success. Moreover, acknowledging the influence of luck and external factors can bolster resilience when confronted with challenges, and foster a sense of both gratitude and humility for any success achieved.

Fairness in a Social World

For me, the scarcity of true performance-driven success, and the distorting nature of social influence felt like a call to reconsider our conventional notions of fairness. Neoclassical economic notions of competition often lead us to naively assume that the world is fair and that the distribution of reward has at least a rough correlation with performance. But Barabási’s research seems to prove that in most cases this couldn’t be further from the truth. The policy implciations of this are, of course, broad and important but beyond the scope of this blog post.

I Recommend

The Formula is engaging and eminently readable. It delves into many other issues and investigations, some mentioned only briefly here or not at all. I add my recomendation to the pile.

Maximum Exposure – How Hemingway Went Bankrupt

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. Gradually and then suddenly.”

– Ernest Hemingway,
The Sun Also Rises

The above dialogue, often presumed to be the pithy observation of an aristocratic drunk, actually recalls Ernest Hemingway’s personal financial circumstances around the time he wrote his breakout novel. It merits our attention because the decisions that lead to those circumstances illustrate a principle of risk-management used by all of the worlds most successful investors from Warren Buffett to George Soros and beyond.

The principle is an investment formula known as The Kelly Criterion. Simply put, it is a mathematical definition of the difference between intelligent risk-taking and recklessness. The image below neatly summarizes the results of the mathematics:

In the above graph, the middle point of the curve describes the optimal size of any given gamble.* Bet any less and you’ll fail to maximize your long-term returns. Bet too much and, even with an advantage, you’ll (eventually) go bankrupt. In practical terms, the graph describes the boundary between intelligent risk-bearing and doomed recklessness.

Paris or Bust

In 1924 Earnest Hemingway was a relatively unknown reporter in working in Toronto. Sick of his day-to-day duties and yearning for a return to the romance of Paris, Hemingway and his wife Hadley broke their lease and fled back to the left-bank.

This was the Hemingway’s first risky decision. The move meant foregoing the substantial salary Hemingway had been earning in Toronto. With their first child just over a year old, this was a daring and some might say reckless decision for a young family.

However, given that the Hemingways had lived for several years in Paris prior to this and knew the city, the people, the cost of living, I would submit that their decision was a form conscious risk-taking. They knew the terrain, and thus to a degree, what could wrong. Plus, they had Hadleys small but not insubstantial trust fund to live off of.

Hadley had a trust fund, bestowed upon her by a banker grandfather; she called it “my sweet little packet of seeds.” It would give the Hemingways $2,000 to $3,000 a year to play with. It was a relatively modest meal, but nourishing enough. – Everyone Behaves Badly, Lesley Blume

Unfortunately, what the Hemingway’s did next proved to be even less calculated and ultimately reckless.

Upping The Ante

Not long after arriving in Paris, Hemingway’s determined that Hadley’s trust fund was being managed too conservatively. Perhaps out of a desire to generate more income to fund their lifestyle, the couple directed that their investments be managed more aggressively.

This decision was reckless first and foremost due to their personal circumstances. With neither working and a young child to provide for, no modern financial advisor worth their salt would recommend or allow an aggressive portfolio.

Recklessness, as described by the Kelly Criterion is a matter of intensity; bet the ranch for long enough and you’ll eventually lose the farm. But in practical terms, there is another variety of risk which is so often a precursor to recklessness that is a species of the thing in its own right. I call it domain risk.

Domain risk manifests when we move from one domain to another, often without realizing it. Think of the race-car driver who tries to ski like an Olympian or the business tycoon who gets burned playing his hand in the art world. When we move outside what Warren Buffett calls our circle of competence, we expose ourselves to new dimensions of hazard.

The Hemingway’s third decision exposed them to domain risk and the results were disastrous. As Lesley Blume recounts in her book, Everybody Behaves Badly,

The couple had concluded that their trust company was too conservative, and instead handed over management of the fund to the husband of a friend of Hadley’s. This wizard not only managed to halve the fund’s capital but also even left the Hemingways without an income for several months. Hemingway squandered precious hours trying to trace the trail of the lost funds, but the couple was ultimately left bewildered and nearly destitute.“It was my ‘complete poverty’ period,” Hemingway reportedly told a friend later.

The Hemingway’s decision to change their financial manager was a subtle but important second dimension to their recklessness. In addition to additional market risk, they exposed themselves to manager risk. As their unfortunate outcome demonstrates, knowing what risks you’re taking is as important as knowing how much risk you’re taking.

The Line

The Hemingway’s were artists and as such perhaps it was in their nature to push things to the limit. Ernest Hemingway was famous for his admiration of bull-fighters and mountain climbers, endeavors where success requires a finely calibrated ability to balance exposure and self-preservation. I, for one, find it revealing that when Hemingway wrote about what he admired in a bullfighter he did so in mathematical terms which echo the Kelly formula:

Romero’s bull-fighting gave real emotion, because he kept the absolute purity of line in his movements and always quietly and calmly let the horns pass him close each time. He did not have to emphasize their closeness. Brett saw how something that was beautiful done close to the bull was ridiculous if it were done a little way off. I told her how since the death of Joselito all the bull-fighters had been developing a technique that simulated this appearance of danger in order to give a fake emotional feeling, while the bullfighter was really safe. Romero had the old thing, the holding of his purity of line through the maximum of exposure, while he dominated the bull by making him realize he was unattainable, while he prepared him for the killing. – Ernest Hemingway, The Sun Also Rises [emphasis added]

It’s worth noting that in this case mathematics provides the illusion of precision. In real life, the boundary between risk and reckless is almost never a bright line. Some people cope with this uncertainty by being ultra conservative and forgo the potential benefits of intelligent risk-bearing. Others have an appetite for risk that often crosses into recklessness and like Odysseus, have to find ways to chain themselves to the proverbial masts. And still a third class possess an intuition for hueing the line – the people who can just smell a good deal.

Being aware of our own proclivities to risk can be the best defense against erring toward conservatism or recklessness. In building and maintaining that awareness, it often helps to have a trusted third-party as a sounding board.

*Image Source: Fortune’s Formula, William Poundstone

Passion is Bullshit – Cal Newport on Finding Work You Love

Once upon a time, my job was to sell bonds. I didn’t like my job. I spent a lot of time thinking about what job I should do instead. The internet said that people should do what they are passionate about. So I thought, what am I passionate about? And I thought about it some more. But the answers were never that compelling.

There were a lot of things I was interested in, but nothing had that quality of deep and soul consuming fire which sends people up the tallest mountains or dodging bullets to feed refugees. So I kept thinking about it. And then, finally, I read Cal Newport’s book, So Good They Can’t Ignore You.

Now I can tell you that passion is (mostly) bullshit. There is a better way to find work you love.

Why Passion Is Overvalued And Overblown

The myth that passion is the way to find work we love, like any good lie, is built on a grain of truth. That truth is that when someone is innately passionate about something, and it works out it for them, it just makes so much sense. We see someone who was born passionate become successful at what they love, and think by golly that’s the way the world is supposed to work. But we forget that this is like looking at someone who was born with a passion for playing the lottery and happened to hit the jackpot – it doesn’t mean it’s going to work for everyone.

The second reason we over attribute success to innate passion is that we tend to like what we become good at. There are a whole lot of people who did not decide what to work on based on any preexisting passion, but developed passion because they became good at what they did. These people then confuse things by telling themselves and others that they have been passionate about what they do all along.

Cal Newport opens So Good They Can’t Ignore You with Steve Jobs as an example of someone who was not always the quintessential passionate entrepreneur. In truth, Jobs was a bright young man who stumbled into something good and then developed a passion for it only after experiencing some success.

As evidence, Newport cites the fact that Jobs was a co-founder at a startup company before starting Apple but abandoned his job without telling his co-founders to spend months at the All One spiritual commune. Not the type of behavior you’d expect from a person who was supposedly deeply passionate about starting a computer company.

Finally, some people just lie about being passionate. They say they love what they do because they’re afraid to admit they don’t. This is a symptom of the fact that our society presumes that to be good at something you must be innately passionate about it. So much so that many people feel it is a mark of personal failure to even admit they do not LOVE their jobs.

For all these reasons and more, passion gets way more credit than it’s due.

Ask Not About Passion But About Career Capital

Instead of trying to figure out what we are passionate about, Newport urges us to focus on acquiring what he calls career capital. For Newport, career capital is rare and valuable skills.

How is this different than the passion-based approach?

First, as a question, the career capital framework shifts the focus of our decision criteria from a question that is centered around “I”, “What am I passionate about?”, to a question that is centered around others, “What is the world looking for that I can become really good at?”

Second, it specifies that the skill must be rare and valuable. For instance, writing words on the internet about books you’ve read is not a rare and valuable skill, so getting good at that is probably a waste of time.

Third, the career capital framework does not demand passion as a prerequisite for trying things. This means you won’t prematurely disqualify things you may end up having a great career in before you have a chance to try them.

Fourth, using the career capital framework makes it explicit that you have to not only identify what skill you want but also acknowledge that you have to get really good at it. Getting good at things is hard. To become genuinely skilled at something you have to get up and do stuff that is tiring and dull and uncomfortable and you have to keep doing it, often for years. Acknowledging this up front helps you make decisions about what you are willing to pursue.*

Finally, the Career Capital approach also provides a safer road-map for getting to where you want to be because as Newport points out, passion can be dangerous. Dangerous because making decisions on passion alone can lead us to attempt things that we are genuinely unprepared for. Passion has lead many people to start businesses armed only with good intentions and no skill or contacts.

Unfortunately, this is like jumping out of an airplane without really knowing how to use your parachute. Yes, you are deeply motivated to learn how to open your chute but you only have so much time to do it and the results will be devastating if you don’t. I did this when I started a business without customers. It’s painful, don’t do it.

Career capital is not as sexy as passion. No one is going to put “Develop Career Capital” on a t-shirt or mug. In fact, it’s so economically intuitive as to be banal. But it is a better approach because it both changes the questions we ask and better defines what we’re seeking.

Once You Have Career Capital, Bargain for Control

The final but critical step in Newport’s formula for achieving work you love is to bargain with your accumulated career capital for control and autonomy over what you do.

To see why these qualities are critical to having a career you love, imagine what it would be like to be a rock star without them. Yes, you’d be famous, and make a lot of money but if you only had three weeks of vacation per year, and no say over where and what you had to play, you’d probably grow to hate it in the long run.

Now imagine you’re a rock star that gets to decide where and how often you work (within reason), and you’re also allowed to pick most of the songs you play. You’d probably end up hating the former and loving the latter scenario, even though they are technically the same job.

Part of the brilliance of Newport’s framework is that he makes it explicit that our ability to set the terms of how we work can be just as, if not more important than what we do.

Work Past And Future

In 1931 the economist John Maynard Keynes wrote that given the rate of improvement in economic productivity, in the future (our present), we would only have to devote a few hours a day to paid “work.” The real problem, he predicted, would be figuring out what to do with all our leisure time.

Keynes’ vision of the future has not come to pass. We still spend a large portion of our lives doing whatever people are willing to pay us for. There has however been a somewhat compensatory shift in focus towards making that work meaningful and enjoyable.

The problem, up to now, had been that no one gave much serious thought to how to intelligently go about finding work you love. Cal Newport’s career capital framework has changed that. Both by re-framing the questions we ask and by better defining what it is we’re looking for, Newport gives us the tools to make better decisions and ultimately create more meaningful lives.

I Is Not Enough – Amartya Sen on the Utility and Moral Dimension of Thinking Beyond Ourselves

One of the reasons for this blog is to share different frameworks of thought that I’ve found helpful or interesting with others. I am the kind of person who really enjoys having a conceptual framework for why, what and how I go about doing just about anything.

In the introduction to his book, The Idea of Justice, the economist Amartya Sen makes an eloquent case for his attempt at crafting a theory of justice. What I love about the passage that follows is that you could replace the word justice for any number of things such as: nutrition, monetary policy, relationships, investing, meaningful work, and have a compelling argument for why we should strive to build a theory around our actions and the actions of others:

The identification of redressable injustice is not only what animates us to think about justice and injustice, it is also central, I argue in this book, to the theory of justice. In the investigation presented here, diagnosis of injustice will figure often enough as the starting point for critical discussion. But, it may be asked, if this is a reasonable starting point, why can’t it also be a good ending point? What is the need to go beyond our sense of the word justice and injustice. Why must we have a theory of justice?

To understand the world is never a matter of simply recording our immediate perceptions. Understanding inescapably involves reasoning. We have to ‘read’ what we feel and seem to see, and ask what those perceptions indicate and how we may take them into account without being overwhelmed by them. One issue relates to the reliability of our feelings and impressions. A sense of injustice could serve as a signal that moves us, but a signal does demand critical examination, and there has to be some scrutiny of the soundness of a conclusion based mainly on signals. Adam Smith’s conviction of the importance of moral sentiments did not stop him from a seeking a ‘theory of moral sentiments’. Nor from insisting that a sense of wrongdoing be critically examined through reasoned scrutiny to see whether it can be the basis of a sustainable condemnation. A similar requirement of scrutiny applies to an inclination to praise someone or something.
*Sen, Amartya Kumar. The Idea of Justice. Cambridge, MA: Belknap of Harvard U, 2011. Print.

As compelling as this is for me, there are, I’ve been told, some people who consider an intellectual framework to be superfluous, if not downright stupid. To such people, a theory is nothing more than an extra layer of unnecessary complexity around a problem. Instead of theoretical frameworks for action, such people assign value only to their intuition and unique personal experiences.

For example, people often dismiss the need for an intellectual framework in the context of weight-loss and exercise. They say things like, “If I want to lose weight, I just eat less and exercise more.” or “If I want to get stronger, I just go to the gym and lift heavy weights.” And in some sense these people are right, they recognize that often it is doing simple and effective things that make real progress and over intellectualizing can be a waste of time and energy.

The problem with this type of thinking is that it runs a dangerous risk of oversimplification and ignores the role that generalizable framework plays in improving the lives of others.

I say improve the lives of others because meaningful lives are the result of good decisions (on average) and good decisions are the result of understanding how the world works. In light of that understanding, the failure to try and think beyond our own intuition and experience can be viewed a failure from a moral dimension.

The failure to attempt to think beyond ourselves is a moral failure because it means we never stop to ask if and how our experiences manifest the underlying reality of the world. Such an approach to life precludes the possibility of creating a generalized framework that can be communicated, tested and then shared to better the lives of others.

That said, there are good reasons to be skeptical of theory. Sometimes theories are bullshit.

petercook Economics, Mental Models, Philosophy, Random July 20, 2017May 19, 2023 3 Minutes

Brett Victor – Building Technology to Human Dimensions & Being Conscious of The Adjacent Horizon

The Humane Representation of Thought from Bret Victor on Vimeo.

At almost 1 hour the above talk by Brett Victor is both long and incredibly thought provoking. In it he explains how our current technological landscape utilizes only a narrow band of humanity’s capacity for thought.

People like to talk about where technology is going and what it will do for us but as Mr. Victor demonstrates, technology doesn’t move towards its highest expression by improvements in processing power or market forces alone. Instead it requires people equipped with the intentionality to design technology that work with and across the scope of human capabilities.

Humane won’t just happen. This not just like Sussman’s technology that is going to happen because there’s already really powerful forces at play. Humane is never a default. And humane only ever comes out of deliberate and conscious design work. If you do the incremental thing, and just ride the current wave of technology and let technology lead you wherever it leads you it’s going to lead you to a tighter and tighter cage…

For me his point about the needs for intentionality in how we design technology speaks to a larger issue in our society. That is, the misguided assumption that outcomes are driven by market forces through a competitive evolution towards their most useful and desirable incarnation. This is naive, many things are shaped almost irrevocably by the design decisions at their beginnings, or to use the technical term they exhibit path dependency. The way that cities are designed is a good example of this.

This is worth talking about because only once we acknowledge this reality that things won’t take care of themselves can we begin to look at the edges of what might have been, and what better future might be on the adjacent horizon, but only with our help. As Mr. Victor eloquently ends his talk: