Lucky or smart?
That’s a question worth asking about the outcomes you see in your day to day life, in your career, and even perhaps in Warren Buffett or Donald Trump’s working life and career.
Researchers A. Pluchino, A. E. Biondo, and A. Rapisarda in their recent paper “Talent vs Luck: the role of randomness in success and failure” say, “the largely dominant meritocratic paradigm of highly competitive Western cultures is rooted on the belief that success is due mainly, if not exclusively, to personal qualities such as talent, intelligence, skills, smartness, efforts, willfulness, hard work or risk taking”.
The paper is academic and includes 23 pages of analysis and models. But as a high-level summary, the authors say, “it is rather common to underestimate the importance of external forces in individual success stories”.
As evidence, they highlight, “intelligence (or, more in general, talent and personal qualities) exhibits a Gaussian distribution among the population, whereas the distribution of wealth – often considered a proxy of success – follows typically a power law (Pareto law), with a large majority of poor people and a very small number of billionaires. Such a discrepancy between a Normal distribution of inputs, with a typical scale (the average talent or intelligence), and the scale invariant distribution of outputs, suggests that some hidden ingredient is at work behind the scenes”.
That is, if the population has a normal distribution of talent then the wealth distribution, as a proxy for success, should have a similar distribution. But it does not. They say the missing ingredient is “just randomness”.
And the authors note that their analysis shows “if it is true that some degree of talent is necessary to be successful in life, almost never the most talented people reach the highest peaks of success, being overtaken by mediocre but sensibly luckier individuals”.
Luck – randomness – plays a role.
Think about the policy implications of that in a world where it is assumed you can and should take personal responsibility for your life and career and the outcomes which flow from that because we exist in a “meritocracy”.
Writing in “Listen Liberal” Thomas Frank wrote , “these days meritocracy has come to seem so reasonable that many of us take it for granted as the true and correct measure of human value. Do well in school, and you earn your credential. Earn your credential, and you are admitted into the ranks of the professionals. Become a professional, and you receive the respect of the public plus a nice house in the suburbs and the fancy car and all the rest.”
In other words, work hard and you will be rewarded. Indeed Frank says, “meritocracy is all about winners, and ensuring everyone has a chance to become one”.
But as Pluchino, Biondo, and Rapisarda’s research show random events, luck, has a big role to play as well.
They say their results “sheds new light on the effectiveness of assessing merit on the basis of the reached level of success and underlines the risks of distributing excessive honours or resources to people who, at the end of the day, could have been simply luckier than others”.
And there are pitfalls.
“Since rewards and resources are usually given to those that have already reached a high level of success, mistakenly considered as a measure of competence/talent, this result is even a more harmful disincentive, causing a lack of opportunities for the most talented ones,” the study says.
“Highlight the risks of the paradigm that we call ‘naive meritocracy’, which fails to give honours and rewards to the most competent people, because it underestimates the role of randomness among the determinants of success”.
That’s a sobering revelation, for society, for business owners and employers, for politicians and service providers, and for all of us as individuals.
But it’s also an anomaly which appears to have been picked up by tech businesses and money managers, like Bridgewater founder Ray Dalio, who have employed flatter structures which empower and reward on the basis of ideas, knowledge, and contribution, not just past success.
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