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The financial world is obsessed with separating skill from luck. A mutual fund manager who beats the S&P 500 for five years straight might be a genius—or may have a high index of luck by chance. Statistical tests like the Information Ratio or the Sharpe Ratio attempt to control for random volatility. Researchers have found that over 10-year horizons, over 90% of actively managed funds show a luck index that suggests their performance is indistinguishable from random chance.
You can actually calculate your own Index of Luck by Chance for specific life events. Pick a domain where the baseline probability is known. index of luck by chance
In hockey, the advanced statistic known as PDO (shooting percentage plus save percentage) is effectively an index of luck by chance. The league average PDO is always 1000. If a team sports a PDO of 1040 over 20 games, the index suggests they are getting very lucky—their shooting percentage is unsustainably high. Smart bettors use this to "fade" (bet against) high-luck teams, expecting regression to the mean. The financial world is obsessed with separating skill
The index of luck by chance is a humbling tool. It reminds us that extraordinary events happen all the time simply because enormous numbers of trials occur daily. Your chance of being struck by lightning (1 in 15,300) is low, but the chance that someone in the US gets struck is high. Statistics strongly support the latter
When you compute a high luck index, you face a choice:
Statistics strongly support the latter. The index doesn't measure destiny; it measures variance. If you won the lottery, your luck index is infinite—but the chance that you specifically won is still one in 300 million. That is not a property of you; it is a property of the game.