Illusion of Skill

We overestimate the contribution of individual skill and effort to outcomes in complex systems — where luck, structural advantages, and context do most of the work.

• Most actively managed investment funds underperform simple index funds over the long run — yet fund managers attribute outperformance to skill and underperformance to bad luck.
• In Kahneman's study of investment advisors, year-over-year performance rankings showed near-zero correlation — the skill component was essentially zero.
• CEOs at the helm during economic booms credit their strategy; those during downturns blame the environment — the boat (the economy, the sector) matters more than the rowing.