(Extracted from The Success Equation – Michael J. Mauboussin)
There’s a quick and easy way to test whether an activity involves skill: ask whether you can lose on purpose.
… [W]hen your undertaking involves a dose of luck, the link between cause and effect is broken. In the short term, even when you do everything right, the outcome of your effort can be bad. Moreover, you can succeed even when you do everything wrong.
… In other words, in a pursuit such as blackjack, where luck is very important, you have to adopt a process that you can trust and not worry so much about the outcome of each hand or even each session of play. Your only chance of winning is to adhere to the rules that you know work. Your skill can’t change the odds, it can only be applied to make sure that you play the cards properly.
… In activities where luck plays a strong role, the focus must be on process… A good process can lead to a bad outcome some percentage of the time, and a bad process can lead to a good outcome. Since a good process offers the highest probability of a good outcome over time, the emphasis has to be on process.