You are smart but can you make money?

It may sound like children’s taunting, make no mistake, it is. But we all have heard this before, directly or indirectly. It is the childish taunt,

“Well if you are so smart, why aren’t you making more money than I do?”

Some of the researchers asked exactly that question. Well not exactly and definitely not to their fellow researchers with more citations but making less money than themselves. They asked,

“Does intelligence drive future career success as measured by income”

Instead of doing just one study, they did a meta-analysis, a statistical summary of 85 existing data sets collected by other similar studies, and conclude that

“There is only 20% correlation between intelligence and future income, showing very low predictability”

Not to mention finding correlation is not an indication of causation.

Well it still does not answer the original question we face but at least we can try to explain how only 4% of income variation can be explained by changes in intelligence.

One more thing, next time you hear advice on “hard work, do your best, etc.” think of this statistic. There is more to getting ahead than just intelligence.

 

If our best ideas come in the shower

I write this from my shower. In fact I decided to stay there forever. This is because I recently came to know about science of creativity and dopamine patterns in showers. Quoting none other than an eminent neuroscientist, a startup founder writes,

Alice Flaherty, one of the most renowned neuroscientists researching creativity has an answer for us. Another ingredient, that’s very important for us to be creative is dopamine: The more dopamine that is released, the more creative we are, she says.

And any lingering doubt I had was expunged when I saw the accompanying colorful brain imagery showing which areas of the brain are working hard while thinking big creative thoughts.

You likely are more skeptical than I am and you may not be convinced at this point. That is where Jonah Lehrer, eminent author and expert on creativity and Bob Dylan, comes.  The said article adds Lehrer’s findings,

‘.. a relaxed state of mind is absolutely important to be creative. That’s why so many insights happen during warm showers,’ Bhattacharya says. ‘For many people, it’s the most relaxing part of the day.’

I bet Lehrer found listening to Bob Dylan very relaxing.

There you have it. You we get our best ideas in the shower.

But then I was reading that article outside of shower and believed it. Clearly, it can’t be my best idea. Because the article says our best ideas are in the shower. Here is my idea from the shower. It is better than my idea to believe that piece on creativity, because it is the best.

Yes there is dopamine association. But to draw causation is another. Here is an evidence based research testing this causal link (the dopamine creativity causal link is based on another flawed study that found dopamine system in creative people is similar to that of schizophrenics)

Research on dopamine concentrations in postmortem brain tissue, on homovanillic acid concentrations, and on dopamine receptors has been negative or inconclusive. Therefore, the idea that the symptoms of psychosis or schizophrenia are caused by the overactivity of dopamine is not supported by current evidence.

But what about that colorful brain imagery? All that scans of people working on creative problem solving? Vaughan Bell, a neuropsychologist and researcher at King’s College London,  writes in Gaurdian

Brightly coloured brain scans are a media favourite as they are both attractive to the eye and apparently easy to understand but in reality they represent some of the most complex scientific information we have. They are not maps of activity but maps of the outcome of complex statistical comparisons of blood flow that unevenly relate to actual brain function. This is a problem that scientists are painfully aware of but it is often glossed over when the results get into the press.

This work and the previous one dismantling the dopamine hypothesis must be available to all those asking us to take shower for our best ideas, don’t you think? Well there is a problem for those looking for something to find in selective data. Dr. Bell adds,

You can see this selective reporting in how neuroscience is used in the media. Psychologist Cliodhna O’Connor and her colleagues investigated how brain science was reported across 10 years of newspaper coverage. Rather than reporting on evidence that most challenged pre-existing opinions, of which there is a great deal, neuroscience was typically cited as a form of “biological proof” to support the biases of the author.

Let us set aside all these dopamine hypothesis and the evidence that contradicts it. Let us ask common sense questions in some plain English.

  1. What makes an idea creative?
  2. What makes it the best? By whose and what measure?
  3. What results came out of those best ideas?

You can see the fallacy in such claims.

There is enough nonsense floating around just from the gurus. As chemist Derek Lowe wrote recently about such flawed science popular media articles,

nonsense does not obey any conservation law. It keeps on coming. It’s always been in long supply, and it looks like it always will be.

That doesn’t mean that we just have to sit back and let it wash over us, though.

Let us not add more nonsense from everyone fashioning themselves as guru. Let us call BS when we see it and stop spreading nonsense.

Did your action really make a difference?

Fooled by Randomness
Fooled by Randomness (Photo credit: Wikipedia)

We all would like to believe and assert that the action we took made a difference, or more precisely the reason for the difference, especially if we are Gurus selling snake-oil. Any positive change in the observed metric, we want to claim it all as direct result of our action. But to what level of certainty do we know that is the case?  Here is a list of questions one should ask but not many ask.

  1. Did you have a control group that is mostly identical to the treatment group (the one you chose to implement the action on)?
  2. What is the expected variance in the metric? Does it bounce around a lot over time or across Geos?
  3. What percentage of the observed change is due to that inherent variance vs. your action?
  4. At what point in the cycle did you implement the action? Was the metric unusually below its expected mean and hence was bound to turn around (regress to the mean)?
  5. What other events happened during the same period that could have contributed to the result?
  6. Are the results scalable – can it be applied across your entire business?
  7. How much more effect is left un-captured? Can you do more of the same to keep increasing results?
  8. Among all players in the market were you the only one to take the action during the period?
  9. Is the action unique to you or can others easily do the same?
  10. If everyone else took the same action what will be the net impact on your metric? How much of the benefit will remain?
  11. What other actions were available to you and how does the effect of this compare to those? What did you forego to implement this action?
  12. Finally let us question the very metric you used. Is that even the right metric you should be looking at? What if you have been measuring your success based on the most irrelevant metric?
  13. Baker’s Dozen: Did you check the dimensions of your metric?

If money can’t buy happiness, can happiness get money?

There are many homilies on whether or not money can buy happiness. But none posed the inverse question, until now. A reasonably solid longitudinal study (performed over a period of time by following the experimental subjects) suggests happiness might lead to better income potential. It finds people who described themselves as happier while growing up went on to earn more than those who weren’t happier. Here is the PDF link.

Naturally you are asking

  1. What is happiness?
  2. How is it measured?
  3. When was it measured? – After all there are many studies from reputable consulting firms and academia that measure an attribute now and say all the past growth was due to that attribute.
  4. What about the effect of parents, more precisely genes on the earning potential?
  5. What are the other lurking variables here?

All very good questions and these are posed and answered by  the researchers except for the last one.

They defined and measured happiness based on answers to four statements

The positive affect subscale is additively composed of the responses to the following four particular statements:
“You enjoyed life,”
“You were happy,”
“You felt hopeful about 
the future,” and
“You felt that you were just as good as other people.”

They did a truly longitudinal study, starting at age 16 and studying income at age 29 for a large sample size. So it avoids hindsight bias and selective recall by participants. It also avoids survivorship bias in the results.

Regarding the effect of parents, family and genes, they controlled for that by studying siblings.

Among siblings, a one-point increase in life satisfaction at age 22, compared with the mean of the family, translated into a nearly $4,000 difference in earnings at age 29, compared with the family mean.

Now that the four main questions are answered can we say categorically that it is not just mere correlation between happiness and income and happiness is the causation?

Unfortunately not. What if there is another lurking variable that led to the respondents’ happiness that is also responsible for their income potential?

But compared to most studies we see this one merits closer look.

Making a faulty case for women in corporate boards

Here is an undeniable fact – considering ~50% of the population is women and 50% of the board of directors are not women, we can safely say women are underrepresented in corporate boards.Now let us return to the reported study in question that makes a faulty case for adding women board members. My arguments are only with errors in the research methods and its application of faulty logic. Nothing more.

Here are the major highlights of the study

  1. The study analyses the performance of close to 2,400 companies with and without board members from 2005 onwards.
  2. Over the past six years, companies with at least some female board representation outperformed those with no women on the board in terms of share price performance
  3. We can now see a much clearer inverse correlation (–0.65 and –0.76 for Europe and the USA respectively) between the relative share price performance of companies with one or more women on the board compared with those with no women on the board and the overall market.
  4. The report identifies seven key reasons why greater gender diversity could be correlated with stronger corporate performance

I see several issues with this type of analysis and subsequent argument attributing causation.

  1. Does the board matter? We are not talking company executives who actively set strategy and make operational decisions everyday. We are talking about the board that meets for a day or two, four to six times a year and in most situations are not the experts in the vertical the company operates in. Do boards really have a role to play in a company’s stock performance? Some of the previous works on this topic found no contribution by the boards in a company’s strategy or stock growth. I am yet to see a report that looked at percentage of changes in stock price that can be attributed to the board.
  2. Leap from Correlation to Causation First the report found a correlation in stock performance then it goes on to provide seven reasons on why the gender diversity is helping stock performance. The implied statement here is, women board members were the reason for stock performance, let us tell you why they made the difference. That is an untenable leap from correlation to causation. It buries us with plausible narratives on how women board members would have made the difference without telling us how it can draw the causation argument.
  3. Flaw of averages  The study compared average stock performance of the two groups. Not pairwise comparison and not frequency comparison. Averages hide lots of detail. Take for instance Apple and S&P 500. While S&P 500 is down 13% from its 2007 highs, without Apple it would have been down addition 2%. What about such big movers in the two groups that disproportionately affect the averages? If we take them out, what would the performance difference look like?
  4. Not asking why some corporations seek diversity in boards  Isn’t the question here, what type of corporations would seek to strengthen its board and seek to add  diversity (not just demographics but ideas too) to help it perform better? Such a corporation is likely already doing many things right that is contributing to its performance. Attributing its performance to appointing women directors is confusing the cause.

For those interested, there is indeed one women member, Andrea Jung (ex-AVON chief) in Apple board. Can one attribute any part of Apple’s stock performance to Andrea Jung?

Since Sheryl Sandberg was appointed to Facebook board their stock has taken a turn for the worse, can one attribute causation to the appointment?

Best Correlation-Causation-Confusion Quote

This is by far the best quote on the fallacy of confusing correlation with causation. This comes from my daughter’s second favorite author Lemony Snicket (Daniel Handler)

If you work hard, and become successful, it does not necessarily mean you are successful because you worked hard, just as if you are tall with long hair it doesn’t mean you would be a midget if you were bald.

This quote, in my mind, displaces the previous best quote by my favorite economics author Greg Mankiw (not my favorite economist however)

Suppose we were to graph average SAT scores by the number of bathrooms a student has in his or her family home. That curve would also likely slope upward. (After all, people with more money buy larger homes with more bathrooms.) But it would be a mistake to conclude that installing an extra toilet raises yours kids’ SAT scores.

Now back to reading, “What can we learn from …” articles I have Instapaper-ed