You’re Smart! So Why Aren’t You Rich???

Black Owned d691b richads1

Black Owned d691b richads1

If You’re So Smart, Why Aren’t You Rich? Scientists Say It’s Your Bad Luck…

As it turns out, the most successful people are not the most talented ones. They are just the luckiest!
At least that’s what a new computer model of wealth creation suggests. Taking that into account could maximize returns on just about any kind of investment.

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.
A report last year concluded that just eight men had a total wealth equivalent to the wealth 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 do so few people have so much wealth?

Traditionally people have thought that wealth is a measure of one’s talent, intelligence, or work ethic. Over time, many people think, this translates into the wealth distribution that we observe, although luck does play some 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.
Plus, many studies have shown that the wealthiest people are generally not the most talented by any measure.

What factors, then, determine how individuals become wealthy? Perhaps chance plays a bigger role than we  once expected?
And can these factors be exploited to make the world a better, more fair place?

Today we get an answer thanks to the work of Alessandro Pluchino and his colleagues at the University of Catania in Italy. These guys have created a computer model of human talent and the way people use it to exploit opportunities in life. The model allows the team to study the role of chance in the process of wealth generation.

The results were surprising to say the least. Their simulations accurately reproduce the wealth distribution in the real world. But the wealthiest individuals are not the most talented, although a certain level of talent is prerequisite to wealth.
They are the luckiest. And this has massive implications for the way we can optimize the returns we get for investments in business and science.

Pluchino’s model is straightforward. It consists of X amount of people, each with a certain level of talent, i.e. skill, intelligence, ability, and so on. This talent is distributed normally around some average level, with some standard deviation. So some people are more talented than average and some are less talented, but nobody is several orders of magnitude more talented than anybody else.

This is the same kind of distribution trend we see for various human skills, or even characteristics like height or weight. Some people are taller or smaller than average, but nobody is the size of an ant or a skyscraper. Indeed, we are all quite similar.

The computer model charts each individual through a working life of 40 years. During this time, the individuals experience lucky events that they can exploit to increase their wealth if they are talented enough.

For example, lets say two people are presented with the same lucky opportunity. Person A is just as talented as the least talented millionaire in the given field. While Person B is only moderately talented in the same field.
Person A is more likely to get rich from the opportunity because they have enough talent, but exactly how rich Person A will get is not determined by talent; it depends on luck

The data suggests that in order to be a millionaire, one must be at least as talented as the least talented millionaires in a given field.
However, one does not need to be significantly more talented than the least talented millionaires in order to be a multi-billionaire. The same level of talent can produce a millionaire or a multi-billionaire!

However, people also experience unlucky events that reduce their wealth. These events occur at random.

At the end of the 40 years, Pluchino ranks the individuals by wealth and studies the characteristics of the most successful. They also calculate the wealth distribution. They then repeat the simulation numerous times to check the robustness of the data.

When the researchers ranked individuals by wealth, the distribution is exactly like that seen in real life. “The ‘80-20’ rule is respected, since 80% of the population owns only 20% of the total capital, while the remaining 20% owns 80% of the same capital,” reported Pluchino.

That may not be unfair if the wealthiest 20% turn out to be the most talented.
But that is not the case.
The wealthiest people are typically not the most talented… or anywhere near it.
The maximum success never coincides with the maximum talent, and vice-versa,” the researchers said.

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 company.

The team shows this by ranking individuals according to the number of lucky and unlucky events they experience throughout their 40-year careers. “It is evident that the most successful individuals are also the luckiest ones,” they say. “And the less successful individuals are also the unluckiest ones.”

This has significant implications for society. So what is the most effective strategy for exploiting the role luck plays in success?

Pluchino and company study this from the point of view of scienctific research funding. Funding agencies all over the world are interested in maximizing their return on investment in the scientific world.
The European Research Council recently invested $1.7 million in a program to study serendipity—the role of luck in scientific discovery—and how it can be exploited to improve funding outcomes.

Pluchino and his team use their model to explore different kinds of funding models to see which produces the best returns when luck is taken into account.

The team studied three models, in which research funding is distributed equally to all scientists; distributed randomly to a subset of scientists; or given to those who have been most successful in the past. Which of these was the best strategy?

The strategy that delivers the best returns, as it turned out, is to divide the funding equally among all researchers. And the second- and third-best strategies involve distributing it at random to 10 or 20 percent of scientists.

In these cases, the researchers are best able to take advantage of the serendipitous discoveries they make from time to time. In hindsight, it seems obvious that the fact a scientist has made a lucky chance discovery in the past does not mean he or she is more likely to do so in the future.

A similar approach could also be applied to investment in other kinds of enterprises, such as small and large businesses, tech startups, education that increases talent, or even the creation of random lucky events.

This changes the outlook we had on wealth generation forever. While more work is needed is this field of study, we can be satisfied that at least we know what direction to move in!

Reference: : Talent vs. Luck: The Role of Randomness in Success and Failure

Facebook @ KweliKush

Leave a Reply

%d bloggers like this: