Saturday, March 3, 2018

If you’re so smart, why aren’t you rich? Turns out it’s just chance.

The most successful people are not the most talented, just the luckiest, a new computer model of wealth creation confirms. Taking that into account can maximize return on many kinds of investment.


Neil Wilson put this out on Twitter. I also came to believe that many rich people were probably just lucky. A person might sell his home to start a business but only one in three businesses are successful. We get to read about very successful people all the time but those that tried and failed disappeared into anonymity and this can give the impression that all we have to do is to try hard enough, and risk things enough, like sell the house, and we can become successful too, but it's not true.  KV

The distribution of wealth follows a well-known pattern sometimes called an 80:20 rule: 80 percent of the wealth is owned by 20 percent of the people. Indeed, a report last year concluded that just eight men had a total wealth equivalent to that of the world’s poorest 3.8 billion people.
This seems to occur in all societies at all scales. It is a well-studied pattern called a power law that crops up in a wide range of social phenomena. But the distribution of wealth is among the most controversial because of the issues it raises about fairness and merit. Why should so few people have so much wealth?

The conventional answer is that we live in a meritocracy in which people are rewarded for their talent, intelligence, effort, and so on. Over time, many people think, this translates into the wealth distribution that we observe, although a healthy dose of luck can play a role.
But there is a problem with this idea: while wealth distribution follows a power law, the distribution of human skills generally follows a normal distribution that is symmetric about an average value. For example, intelligence, as measured by IQ tests, follows this pattern. Average IQ is 100, but nobody has an IQ of 1,000 or 10,000.
The same is true of effort, as measured by hours worked. Some people work more hours than average and some work less, but nobody works a billion times more hours than anybody else.
And yet when it comes to the rewards for this work, some people do have billions of times more wealth than other people. What’s more, numerous studies have shown that the wealthiest people are generally not the most talented by other measures.
That may not be surprising or unfair if the wealthiest 20 percent turn out to be the most talented. But that isn’t what happens. The wealthiest individuals are typically not the most talented or anywhere near it. “The maximum success never coincides with the maximum talent, and vice-versa,” say the researchers.
So if not talent, what other factor causes this skewed wealth distribution? “Our simulation clearly shows that such a factor is just pure luck,” say Pluchino and co.
Emerging Technology
If you’re so smart, why aren’t you rich? Turns out it’s just chance.


25 comments:

Ralph Musgrave said...

I don't believe it's PURE luck, though luck obviously has much to do with it.

Tom Hickey said...

IIRC, Bill Gates said as much. Yes, you have to be smart, but that's not enough. There are a lot of smart people out there and many of them are a lot smarter than the people that get to the top.

A lot of factors have to come together and there is a chance element to this that selects some and not others. Kind of like winning the lottery of birth and being born a prince instead of a pauper. There are a whole lot more paupers than princes.

From the larger perspective, its all karma.

Matt Franko said...

Well munnie isnt everything... and just because a phenom can be analyzed stochastically doesnt mean it is "luck"...

Dont confuse the outcome of a stochastic analysis with "luck"...

Matt Franko said...

I for one would NEVER trade places with one of these rich douchebag morons going all around saying "were out of money!".. never in a million years... no way...

Matt Franko said...

You know Taleb who is probably most famous for this type of analysis wrote that book "Fooled by Randomness" but if you watch him there is a lot of Deterministic activity that he misses imo...

He was incredulous and threatening to leave the country back in 2008/2009 when the Treasury intervened in the "crisis"...

Here he is:

https://www.zerohedge.com/article/nassim-taleb-government-debt-becoming-pure-ponzi-scheme

He doesnt seem to understand deterministic systems very well if at all...

Matt Franko said...

Much Darwin bias at work here too with the focus on stochastic type of analysis...

Tom Hickey said...

Well munnie isnt everything... and just because a phenom can be analyzed stochastically doesnt mean it is "luck"...

Dont confuse the outcome of a stochastic analysis with "luck"...


From the perspective of karma, everything is determined other than grace. But only infinite consciousness is capable of knowing this.

Meher Baba on infinite Knowledge:

There cannot be anything hidden from the One who is everywhere present, for He is everywhere. And it naturally follows that when there cannot be anything hidden from this One He must also be All-Knowing, knowing everything.

The infinite-Knowing is 'seeing' everything at one and the same time, and seeing it NOW. It is that Knowledge which does not begin and does not end; which is indivisible and continuous, and to which nothing can be added and from which nothing can be subtracted.

It is that Knowledge which makes God at this moment know that which He knew when it occurred countless aeons ago, and makes Him know that which will occur countless aeons hence; that Knowledge which makes everything known to God simultaneously and NOW. It is the Knowledge of the Perfect Masters and the Avatar.

In terms simpler to you it means that which you as individuals know at this moment I knew aeons ago, and what you individuals in ages to come will be knowing at a particular moment, I know now.


The Everything and the Nothing, 33 (1963), p. 58

The rest of us have to use statistics. :o

Tom Hickey said...

Dont confuse the outcome of a stochastic analysis with "luck"...

Stochastic analysis always applies only to populations and never to the individuals themselves as individuals.

Even though the probability may be known precisely, the outcome of every roll of the dice and coin-flip is a chance event and the length of runs knowable, assuming that the dice and coins are fair.

Tom Hickey said...

Not all material systems are mechanistic. That is the case largely with the natural sciences and fixed institutional arrangements.

Mechanistic systems tend to be ergodic and deterministic at the classical level.

Biological systems are also material and they are organic rather than mechanistic.

Organic system are complex adaptive systems.

Social systems are also materialistic and resemble organic systems more than mechanistic systems.

Social systems are not only complex adaptive system but they have a high degree of reflexivity and the ability of the elements and subsystems to shift.

Economics needs to deal with all of these and use of mechanistic, deterministic approaches is limited in scope owing to the nature of subject matter.

Noah Way said...

So much for "material competence".

Matt Franko said...

"The rest of us have to use statistics. :o"

Tom, yes I get it God has bigger fish to fry.... but not in regards to earthly material systems... those we have largely been given authority over ourselves... so WE get to largely determine our material outcomes...

Genesis 1:28 "God saith to them, 'Be fruitful, and multiply, and fill the earth, and subdue it,"

This basic authority we were given at the beginning of the creation of man has never been revoked... we can still manipulate/manage material systems for our immediate benefit as we see fit...

Instead we have these libertarian morons running all around the place saying "we're out of money!.. we're out of money!"... its really Satanic at core ie is anti-authority...

Matt Franko said...

Noah none of this is even hard for people properly trained...

Tom Hickey said...

A good example is how the payments system run by the cb operates seamlessly — everything always clears on time and the books balance at the end of the day — while the cb honchos tasked with controlling inflation with "independent" monetary policy admit they don't know what causes it.

Matt Franko said...

"Economics needs to deal with all of these"

NO.. IT.. DOESN'T....

The etymology itself is "house-management"... a "house" is a material system...

Tom Hickey said...

Let's agree to disagree.

Noah Way said...

Material competence is irrelevant and in fact largely detrimental to advancing your own material position in capitalist society.

It's much, much easier to "make money" by destroying something (break-ups, vulture capitalism, shorts of every variety) or by "gambling" in rigged games than by creating and building. The costs associated with constructive processes are a financial deterrent.

Joe said...

Leonard Mlodinow wrote a wonderful book dealing with this called the drunkard's walk.
Talent and hard work just improve your odds, loads the dice a bit, but in the end it's still a dice roll. It's luck that you happened to stop in to have a drink at the same time as that other guy who told you about a job opening where you were co-workers with another person who happened to be working on the same team who happened to be friends with a guy who's brother was chatting about a work issue at a superbowl party you attended that you had an idea how to solve...

There's a huge random component in everything. Anyone who thinks they're completely selfmade and never relied on anyone else ever or didn't benefit from a bit of pure old fashioned good luck is delusional. But it's part of human nature, in psychology experiments with random or even openly rigged games, winners start to feel superior to the losers.

Ryan Harris said...
This comment has been removed by the author.
Matt Franko said...

I dont see how you guys view wrt to "luck" here is any different to the ancient Israelite view that if someone was born handicapped it was interpreted that someone in their ancestry must have done something wrong or sinned or wtf...

Those who remain competent can easily impose judgement in these situations and minimize any material problems that these "unlucky" may have to otherwise experience...

Calgacus said...

Matt: In general, I agree with you that "so WE get to largely determine our material outcomes" and "we can still manipulate/manage material systems for our immediate benefit as we see fit.." And that not understanding this is the more usual problem for nations (though not necessarily individuals) today.

But what the post and comments are saying is "I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all."

Chance isn't everything, but it's not nothing either. North Korea may have a bit too much juche, self-reliance. It should export it somehow, because most countries, Greece, Brazil, Venezuela, Argentina etc have too little, read too much Ecclesiastes rather than too little.

In "house-management", house is the material part, but "management" (or even "system") is the non-material.

Tom Hickey said...

In "house-management", house is the material part, but "management" (or even "system") is the non-material.

As long as we are doing etymology, in traditional societies, management of the home is that prerogative and responsibility of women. Management is not so much about efficiency but rather comfort.

In other words, feeling trumps reason, and quality of life is prioritized over quantity ("growth"".

The material is the servant of the non-material in this system.

In addition, the family is the unit of society rather than individuals. And a house is not a home until it is made into one. Moreover, not all homes are equally "homey," that is, of the same quality of life. Home management is an art that involves feeling as well as a rational science.

When I was in grammar school, the girls took home economics while the boys took shop.

It's now the feminist economists that are emphasizing the traditional view of "economics" based on "home-management," and they are viewed as "radical.'

Matt Franko said...

Females are superior managers imo... on average...

"In "house-management", house is the material part, but "management" (or even "system") is the non-material."

I would buy that but that non-material "management" can still be judged based on quality of the material outcomes..

"A good tree cannot produce bad fruit, nor can a bad tree produce good fruit. Every tree that does not bear good fruit is cut down and thrown into the fire. So then, you will know them by their fruits," Mat 7

"For it must be that there are sects also among you, that those also who are qualified may be becoming apparent among you." 1 Cor

You have to get the right people in the right jobs... ie you have to get the people who have trained correctly and appropriately.... then how you can tell if you have the best people is by the quality of the material outcomes...

ie the shit holes are run by incompetent/unqualified...

We dont have the right people in charge and working in economic policy obviously...

Tom Hickey said...

then how you can tell if you have the best people is by the quality of the material outcomes...

ie the shit holes are run by incompetent/unqualified...

We dont have the right people in charge and working in economic policy obviously...


This is characteristic American thinking, and to a degree Western thinking. It is based on the 128th century Enlightenment view of human nature that assumes all people are the same in nature and have the same innate value structure, which if only allowed freedom to express itself will result in universal adoption of Western Enlightenment values.

This belief, and it is a belief based on assumptions rather than well-confirmed science, lies at the basis of the attempt to export Western values to the world under the guise of spreading freedom and democracy as core liberal values.

But forcing others to adopt positions against their will is illiberal.

Moreover, there is a lot of evidence that when countries are Westernized according to the Washington Consensus, the people at the top are "better off" than they would have been otherwise, but the people lower down are less well-off and more dissatisfied.

Exporting liberalism at the point of a gun is much the same as exporting Christianity at the point of a sword to "save the heathen."

Tom Hickey said...

"128th century" should be "18th century."

Matt Franko said...

"This is characteristic American thinking, and to a degree Western thinking."

that's why the west is less shit hole...

If you dont want a shit hole, then you adopt the western thinking... see China, Japan etc... they are all western wannabes and USD zombies...