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In finance it has long been known that diversity in a portfolio can often trump the performance/ability in a particular stock. Turns out, you can see portfolio
by bayesianhorse 12y ago
In finance it has long been known that diversity in a portfolio can often trump the performance/ability in a particular stock.
Turns out, you can see portfolio theory popping up outside of financial markets, not only in assembling a team, but also advertising campaigns, ant colonies and bacterial colonies.
And yes, I know that the linked article debunks a paper that abuses math... It's just that portfolio theory is at least an analogy to understand why diversity can trump ability. Within reason.
- Guthur 12y agoIn my opinion the reason "portfolio theory" works in the cases that you mentioned is that it most perform well across a time series within a highly dynamic environment. But if one is allow to pick an optimal team for each discrete problem then it will surely outperform. In my mind diversity will help when you have little to no a priori knowledge and then for can not predict what attributes you will need.
- bayesianhorse 12y agoHave you never seen a software development project which ran into unanticipated problems? What about "knowledge work" is not a highly dynamic environment?
- ohsnap 12y agoPortfolio theory does not work here. Totally different concepts. MPT is about minimizing risk - not trumping the performance of a stock.
- bayesianhorse 12y agoMPT is not about "minimizing the risk". It's about minimizing risk for a desired reward. In an abstract way of speaking, selecting team members is very similar.
- roguecoder 12y agoAlso the empirical studies from MIT about group problem solving. They have observed that diversity contributes more than the abilities of the individuals. It's not that the idea that diversity trumps ability in an unpredictable situation is wrong: it's that the original mathematical argument doesn't demonstrate that.