How to Increase the Average IQ of Two States

The Art of Thinking Clearly - Rolf Dobelli 2014

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 sizable 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, named 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 recognize 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 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 centers, or product lines.

A particularly deceitful case of the Will Rogers phenomenon is found in medicine. Tumors 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 onto the market and allow for more accurate diagnosis. These new screening techniques reveal minuscule tumors 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.