A business-writing tic that drives James Surowiecki nuts

Sports journalists are not the only ones to overinterpret small samples. In The New Yorker, James Surowiecki makes a similar point about business writing. His example -- the Boeing-Airbus rivalry: What much of the talk about the inherent weakness of Airbus ignores is that, just a few years ago, it was Boeing that looked fundamentally flawed, while Airbus was seen as the future of the industry. Beginning in the late nineties, Boeing?s commercial-aircraft business went into a long and nearly profitless slump. In 2001, Airbus surpassed Boeing in new orders, a lead it maintained until this year. During that period, Airbus?s unusual structure was praised; its insulation from the stock market supposedly allowed it to invest in long-term research and development. Boeing, by contrast, was thought to be trapped in a short-term, cost-cutting mentality, because, as one analyst put it, ?the money guys don?t reward long-term thinking and investment.? In 2003, Business Week declared that Boeing was ?choking on Airbus? fumes,? and warned that Boeing?s ?slip to No. 2 could become permanent.? The problem with such prognostications is that they infer basic truths about a company?s prospects from its short-term performance. In fact, present success is often determined as much by context and chance as by fundamental viability. This is particularly true of the aerospace industry, because success is heavily dependent on a small number of big gambles. If you bet right, you look like a genius for a few years, even if the success of your bet was due to factors out of your control. The 787 may now look like Boeing?s salvation, but Boeing built it only after more ambitious plans?for a plane, known as the Sonic Cruiser, that would have been the fastest passenger jet in the air?fell through, partly because of the slowdown in air travel after September 11th. And had Boeing not been in such straits in 2003 it probably wouldn?t have risked the investment required for the 787. People are generally bad at accepting the importance of context and chance. We fall prey to what the social psychologist Lee Ross called ?the fundamental attribution error??the tendency to ascribe success or failure to innate characteristics, even when context is overwhelmingly important. In one classic demonstration, people shown a person shooting a basketball in a gym with poor lighting and another person shooting a basketball in a gym with excellent lighting assume that the second person hit more shots because he was a better player. This problem is compounded by the tendency to extrapolate big conclusions from small samples, something that behavioral economists call ?the law of small numbers.? In the decade or so that Airbus has been a serious competitor to Boeing, this is its first really bad patch, and its difficulties are due mainly to making one bad bet while Boeing made one good one. That?s a minuscule sample size on which to base any kind of conclusion. But this is exactly what we like to do: sports fans assume that a few excellent performances are proof of a player?s underlying ability, while investors assume that a mutual fund?s record over one year is a reliable indicator of the manager?s skill. Because we underestimate how much variation can be caused simply by luck, we see patterns where none exist. It?s no wonder that management theory is dominated by fads: every few years, new companies succeed, and they are scrutinized for the underlying truths that they might reveal. But often there is no underlying truth; the companies just happened to be in the right place at the right time.