The Art of Thinking Clearly: Better Thinking, Better Decisions

See also Authority Bias (ch.9); Domain Dependence (ch. 76); Chauffeur Knowledge (ch.
16)

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58
HOW TO INCREASE THE AVERAGE IQ OF TWO STATES
Will Rogers Phenomenon
Let’s say you run a small private bank. The bank manages the money of wealthy
and mostly retired individuals. Two money managers – A and B – report to you.
Money Manager A manages the money of a few ultra-high-net-worth individuals.
Money Manager B has rich, but not extravagantly rich, clients to deal with. The
board asks you to increase the average pool of money of both A and B – within
six months. If you succeed, you receive a handsome bonus. If not, they’ll find
someone else to do it. Where do you start?
It’s quite simple, actually: you take a client with a sizeable but not a huge pool
of money from A and give it to B instead. In one fell swoop, this brings up A’s
average managed wealth as well as B’s without you having to find a single new
client. The only remaining question is: how will you spend your bonus?
Suppose you switch careers, and are now in charge of three hedge funds that
invest primarily in privately held companies. Fund A has sensational returns, fund
B’s are mediocre and fund C’s are miserable. You want to prove yourself to the
world, so what’s your master plan? You know how it works now: you move a few
of A’s shares to B and C, picking exactly those investments that have been
pulling down A’s average returns, but which are still profitable enough to fortify B
and C. In no time, all three funds look much healthier. And, because the
transformation happened in-house, you don’t incur a single fee. Of course, the
combined value of the trio hasn’t risen by a single cent, but people will still pat
you on the back.
This effect is called 
stage migration
or the 
Will Rogers phenomenon
, after an
American comedian from Oklahoma. He is said to have joked that Oklahomans
who pack up and move to California raise both states’ average IQ. Since we
rarely recognise such scenarios, let’s drill the 
Will Rogers phenomenon
to anchor
it in your memory.
One good example is an auto franchise: let’s say you take charge of two small
branches in the same town with a total of six salesmen: numbers 1, 2 and 3 in
branch A, and numbers 4, 5 and 6 in branch B. On average, salesman number 1

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sells one car per week, salesman number 2 sells two cars per week and so on up
to top salesman number 6, who shifts six cars each week. With a little calculation,
you know that branch A sells two cars per salesman, whereas branch B is far
ahead with an average of five cars per salesman per week. You decide to transfer
salesman number 4 to branch A. What happens? Its average sales increase to
2.5 units per person. And branch B? It now consists of only two salesmen,
numbers 5 and 6. Its average sales increase to 5.5 per person. Such switcheroo
strategies don’t change anything overall, but they create an impressive illusion.
For this reason, journalists, investors and board members should be on special
alert when they hear of rising averages in countries, companies, departments,
cost centres or product lines.
A particularly deceitful case of the 
Will Rogers phenomenon
is found in
medicine. Tumours are usually broken down into four stages: the smallest and
most treatable ones are classified as stage one; the worst are rated stage four.
Their progression gives us the term 
stage migration
. The survival rate is highest
for stage-one patients and lowest for stage-four patients. Now, every year new
procedures are released on to the market and allow for more accurate diagnosis.
These new screening techniques reveal minuscule tumours that no doctor had
ever noticed before. The result: patients who were erroneously diagnosed as
healthy before are now counted as stage-one patients. The addition of relatively
healthy people into the stage-one group increases the group’s average life
expectancy. A great medical success? Unfortunately not: mere 
stage migration
.