Study says being rich is determined by chance rather than intelligence or talent

[player514]

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.

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.

What factors, then, determine how individuals become wealthy? Could it be that chance plays a bigger role than anybody expected? And how can these factors, whatever they are, be exploited to make the world a better and fairer place?

Today we get an answer thanks to the work of Alessandro Pluchino at the University of Catania in Italy and a couple of colleagues. 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 this process.

The results are something of an eye-opener. Their simulations accurately reproduce the wealth distribution in the real world. But the wealthiest individuals are not the most talented (although they must have a certain level of talent). They are the luckiest. And this has significant implications for the way societies can optimize the returns they get for investments in everything from business to science.

Pluchino and co’s model is straightforward. It consists of N people, each with a certain level of talent (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 so, but nobody is orders of magnitude more talented than anybody else.

This is the same kind of distribution seen 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.

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

At the end of the 40 years, Pluchino and co rank the individuals by wealth and study the characteristics of the most successful. They also calculate the wealth distribution. They then repeat the simulation many times to check the robustness of the outcome.

When the team rank individuals by wealth, the distribution is exactly like that seen in real-world societies. “The ‘80-20’ rule is respected, since 80 percent of the population owns only 20 percent of the total capital, while the remaining 20 percent owns 80 percent of the same capital,” report Pluchino and co.

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.

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.”

That has significant implications for society. What is the most effective strategy for exploiting the role luck plays in success?

Pluchino and co study this from the point of view of science research funding, an issue clearly close to their hearts. Funding agencies the world over are interested in maximizing their return on investment in the scientific world. Indeed, 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.

It turns out that Pluchino and co are well set to answer this question. They use their model to explore different kinds of funding models to see which produce 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 preferentially to those who have been most successful in the past. Which of these is the best strategy?

The strategy that delivers the best returns, it turns 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 is obvious that the fact a scientist has made an important chance discovery in the past does not mean he or she is more likely to make one in the future.

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

Clearly, more work is needed here. What are we waiting for?

Ref: arxiv.org/abs/1802.07068 : Talent vs. Luck: The Role of Randomness in Success and Failure

https://www.technologyreview.com/s/610395/if-youre-so-smart-why-arent-you-rich-turns-out-its-just-chance/

A very interesting spin on anything that has ever been said about money, success or wealth!

I don't know what to think about this. The scaling argument which says 1% of the human population shouldn't own 40% of the world's wealth due to them not having IQ's of 200,000 or talent proportional to the highly disproportionate stake of wealth they control is something that will take time for me to digest and think about. Its certainly a novel concept.

Its also very interesting that they attempted to model along lines of standard deviation and wound up with a historical 20/80 wealth distribution. I think this is something which could use more exposure and media coverage. Its not often relatively original or new perspectives like this come along and the paradigm shift which can accompany them can often take decades to be fully appreciated within a pop culture vein.

This definitely has a lot to do with cryptocurrencies. I think the smarter people try to move towards stability moreso than wealth. For the intelligent man, being rich is not the ultimate goal -- it's being happy. In the cases of this article, there's a lot of chance that goes on with being rich that I definitely agree with it. For example, being born into a rich family sets you up to inherit whatever your parents created. There's not much work or intelligence being used there because it's just a continuation of everything already being set up for you.

With bitcoin, there have been countless people who are getting rich off of crypto (or who have gotten rich), and they might not have even known what they're investing into. I guess it's just how it goes; some people jump in early and get very lucky, while other get stuck behind.

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[Basmic]

Children of the rich today can get the best education. They have the opportunity to be successful in the future. No one is born a Prodigy. Everyone has the ability to learn, but that's not enough. You need to have a desire to learn and apply their knowledge in practice. It is not given to everyone. High IQ is necessary for enterprise management but for owners of the enterprises it is not obligatory criterion.

[gakadem]

Everyone has a dose of sustenance each, and to become rich we need hard effort and struggle. but do not just rely on luck, because life is not gambling!
we embrace perseverance and must be able to motivate ourselves to be successful / rich

[ecnalubma]

Some people struck luck but some succeeded thru hardwork, we cannot justify where and what is the right track to become successful. However if you keep on searching new things and get out of your comfort zone then there’s always a chance that you will succeed and become rich, because being intelligent is not enough but both mind and body should work simultaneously.

[BountyX]

I am absolutely nor surpised by this result. I have lived long enough to verify this rule with my own experience. However, something is missing from this study. What the researcher has described as "luck" and as "talent" should be defined better. The people who get rich are the ones who by sheer luck have the talent of doing very well with no merit whatsoever exactly that combination of actions which causes them to become rich. In other words, they don't chose what to do to become rich, but they happen to become rich by what they do.

[paxmao]

IQ is by no means a measure of talent and neither is wealth.

It is quite common in business and in science to use as measure things that are easy to measure. IQ accounts only for a little set of human abilities that are particularly easy to measure and that is where the trap lies.

One of the classics of the last decades, the book Emotional Intelligence by D. Goleman, shows that success in life and happiness are related to a wide variety of personal, interpersonal and social skills much more than with the IQ. We are simply measuring the wrong things.

This brings also another possibility: people with high IQ are not neccsarely attracted to accumulate wealth, but find other ways of being happier in life.

[Stratobitz]

IQ is by no means a measure of talent and neither is wealth.

It is quite common in business and in science to use as measure things that are easy to measure. IQ accounts only for a little set of human abilities that are particularly easy to measure and that is where the trap lies.

One of the classics of the last decades, the book Emotional Intelligence by D. Goleman, shows that success in life and happiness are related to a wide variety of personal, interpersonal and social skills much more than with the IQ. We are simply measuring the wrong things.

This brings also another possibility: people with high IQ are not necessarily attracted to accumulate wealth, but find other ways of being happier in life.

Not sure that high IQ necessarily plays that big of a factor into the overall "chances" of becoming very wealthy. And IQ certainly has little to do with specific talents; as a person can be a virtuoso on the guitar but have perhaps only a normal (100-110) IQ, or even under.

There's also which type of IQ test we're talking about; one that measures crystallized intelligence, or one that measures fluid intelligence.

Some people may rate extremely high on a test which measures fluid intelligence, which deals more with problem solving and logic, but fail miserably on crystallized tests which deal more directly with vocabulary, mathematics, and so on.

I would agree Emotional Intelligence plays a HUGE role in ones over all chance at simply being sucessful- as people with high emotional IQ's have a much greater ability to relate, influence, motivate, and attract other people.

A sign of high Emotional IQ is how much time and effort and thought one puts into "crafting" their own image. People with high Emotional IQs; they worry very little about these types of things- and simply "are who they are". They have high levels of confidence of being themselves.

A sign of low Emotional IQ would be a person who carefully crafts online social profiles, is highly selective over how they appear to other people, spends too much time trying to appear a certain way. Basically high levels of insecurity.

Emotional IQ I'd say plays a larger role than most would think in terms of a person being able to "position" themselves where they can achieve their best.

[BitcoinBallerina]

IQ is by no means a measure of talent and neither is wealth.

It is quite common in business and in science to use as measure things that are easy to measure. IQ accounts only for a little set of human abilities that are particularly easy to measure and that is where the trap lies.

One of the classics of the last decades, the book Emotional Intelligence by D. Goleman, shows that success in life and happiness are related to a wide variety of personal, interpersonal and social skills much more than with the IQ. We are simply measuring the wrong things.

This brings also another possibility: people with high IQ are not neccsarely attracted to accumulate wealth, but find other ways of being happier in life.

in as much as IQ is played down when it comes to wealth determination., brilliant people tend to get rich and stay rich. this is majorly because they know how to handle their wealth. if you cant handle your wealth well then its as good as gone. i think IQ is a bigger role to play than is credited.

[batang_bitcoin]

~snip~

That's not truth, even life could not let you becamo rich, I think theres too much anarquist here, and theres people without a chance.

Life is there, it's a gift from God or whom you believe that gave it to you. But we are the one's who are controlling our lives. If you don't think that life can make you rich, then start working hard today. As long as you live, there is a chance and for those who are not giving up they have the highest chance to have the best fight against poverty and they can excel with their lives while those who give up and says they have no chance are literally poor not only in financial matter but also in encouragement.

[St4yInTh3D4rk]

Children of the rich today can get the best education. They have the opportunity to be successful in the future. No one is born a Prodigy. Everyone has the ability to learn, but that's not enough. You need to have a desire to learn and apply their knowledge in practice. It is not given to everyone. High IQ is necessary for enterprise management but for owners of the enterprises it is not obligatory criterion.

Do you know something 90% of the successful people in the world who even din't their complete their school level education,so the best education is not enough to being the rich the management is very important  but lot of the wealthy children don't have that they just spend their parents assets.If someone want to become wealthy the desperation with smart work will make help him to reach that place.

[fiulpro]

Well I do think that we didn't needed to have long researches being done since the people who are intelligent and knowledgeable often are very well aware of the fact that money can't buy everything and are very well settled with whatever they have.
It's a chance factor that keeps on changing .
One moment you are rich and the other moment you do have nothing.
There is nothing that one can do about it it's sheer luck and offcourse a lots of brain.
With just luck it's very hard and can never be attained.

[automail]

For some reason, I kinda agree to this topic. No matter how good a person to his or her chosen field, the odds of being rich depends on luck. I have know a lot of smart people but they didn't end up rich. The one who got rich was the one who has a SO-SO brain because he got with his job as a broker. It also depends on the career path of an individual. There are careers that can make you rich while there are jobs that can make you survive but that just it .Having just enough is not really good for someone. We need to be hungry for more.

[Jazvebtc18]

For some reason, I kinda agree to this topic. No matter how good a person to his or her chosen field, the odds of being rich depends on luck. I have know a lot of smart people but they didn't end up rich. The one who got rich was the one who has a SO-SO brain because he got with his job as a broker. It also depends on the career path of an individual. There are careers that can make you rich while there are jobs that can make you survive but that just it .Having just enough is not really good for someone. We need to be hungry for more.

Somehow,your right. To be rich depends on how you will strive for your success. If you are intelligent person not a wise person,I could say that you can't be rich. Wise person is the one who really knows how to  make a lot of money. There are careers that doesn't need so much intelligence , only wise thinking and most of them are with higher payments.

[UzumakiSakuragi]

In my opinion that can be determined by the ability of a person. people has freedom to choose the path of life he want.used your ability to bring the best in you whether  wealth or rich in goodness.

[Hell-raiser]

I am not entirely surprised by this at all actually, anecdotally I have always felt people who achieved success where mainly in the right place right time. Whether that be born to a certain family or class, or to a certain country, or area of a country, these things all effect where we will end up. Good to know us average folk can still make it in this rigged world

Luck plays a factor we have always known that but you still need the talent to take advantage of the opportunity life gives you, look at bitcoin, we know we can make money with it but if you lack the talent then you are not going to make much money with it, but with the right skill you can make a fortune, this is why even if lucks plays a factor we cannot say it is everything, there have been several studies that shows that those that have an higher IQ and more education have greater salaries and get better outcomes.

This point is debatable. If you have skills, and I guess you mean trading skills here, you can earn money with almost any asset traded, not just Bitcoin alone. With that said, there are (were) quite a few big Bitcoin holders for which stumbling upon it was pure luck. Do they deserve being wealthy? I don't know, but what I know for certain is that there was quite a lot of luck at play in this case. Many of these people were just random dudes from the street that were lucky enough to get hold of a few bitcoins back then and patient enough to keep them till recent.

[eaLiTy]

A very interesting spin on anything that has ever been said about money, success or wealth!

I don't know what to think about this. The scaling argument which says 1% of the human population shouldn't own 40% of the world's wealth due to them not having IQ's of 200,000 or talent proportional to the highly disproportionate stake of wealth they control is something that will take time for me to digest and think about. Its certainly a novel concept.

The only argument i have to say is that,there are billionaires who became successful from nothing and for that to happen you need to have a combination of luck ,hard work, determination, intelligence and talent and if you have those skills you can become an entrepreneur and change the world, i can list many billionaires who took the opportunity at the right moment and became successful and for that to happen you need to have the guts to take risk and a level of intelligence to make things work.

[Shamie1002]

Not surprisingly true. Most of the wealthiest persons are greedy ( not all but most ). They would want to keep it to themselves by forcing their sons or daughters to continue what they have started. Wealth is just being passed and not really distributed.
In my own perspective, I think that once an individual, poor or an average one could reach success as long as they work hard for it. Wealth will take place from time to time.
Though its a bit unfair for hardworkers that exerts more effort to achieve something in life, I think when they are on the top of their game, they will be stronger than the ones who started at the top already.

[Direwolve735]

This statement is true most of the time. Intelligence is not a measure of wealth. Thousands of graduates with honors are now unemployed, short in money, no house nor any wealth. That's the reason we should not judge a person. You never know when a beggar could be hit by luck and won a lottery worth a million dollars.

Of course, intelligence is not a guarantee of success, this is not a sufficient basis for wealth. But this is a necessary condition for honest and decent earnings. Luck plays a huge role, but you can not go on one luck all your life. Even if you succeed in winning a huge amount of money with luck, without special skills and intelligence, you simply won`t be able to keep it, so you will lose it. That`s why I think being rich is determined by intelligence and your personal skills rather than just lucky chance.

[worle1bm]

See if we say that being rich or poor is in our destiny and predetermined than we are totally wrong on this point as we have seen many examples in the world where poor have worked hard and have changed their fate and become rich so get up if life knocks you down and work more hard and shine more brightly to end darkness of your life.Every rich is not born rich but some are self made millionares.

[GoodLuck2]

In my opinion, I don't really agree being rich is determined by chance rather than intelligence or talent, take Cristiano Ronaldo who is one of the best footballer in the world as example, he is one of the richest football player in the world due to his talented skills in the game.

Bill gates does have great intelligence to be able to create Microsoft and he also became the world richest man because of his own creation.

But without Alex Ferguson giving Cristiano Ronaldo a chance to be included in the first team of Manchester United in the past, Cristiano Ronaldo might not be able to gain his fame and popularity in such a short period of time so chance is also a very important aspect, and I would say being rich is actually determined by chance, intelligence and talent.

I absolutely agree with your own opinion Sir. Being rich not determine by chance rather than intelligence or talent. A good example Mr Bill Gates the person who become rich using his talent. The example of the person who become rich because of the chance are those person with skill with the help of other person in giving his chance to explore his talent.

You can’t go for one option solely. On the same side, you need talent and skills to show yourself off the market and likewise there must exists a chance to lift you up. Otherwise there are hinders and thousands of stories where talent is wasted only because they weren’t encountered with chances. Both are compulsory to each other, rather nothing is superior in such case.