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

[Kanda Yu]

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.

I agree. When I was just starting here in bitcoin, fortune was very far away from me. I always end up joining scam bounties leading for a worthless hardwork. Though that's what happened, I kept on going. I know that time will come and destiny will lead me to a great profit until it finaly happened. Amidst all the hardwork and intellegence I have, chance still is the one who says what will happen to you.

[allohha]

There are numerous individuals who turned into a rich individual since they work and concentrate hard to pick up information and thoughts on how it will functions. Having these things help them to beat it to be fruitful throughout everyday life. We can state that it is an opportunity/chances in light of the fact that not all of individuals know bitcoin and we are pleased that we are one that picked on it to join this activity.

in the world all is changeable enough and it is not necessary to consider that only he and or the person possessing any knowledge can be rich. If you take for example the business of crypto-currency, recently a lot of people joined Ataman business, who accidentally learned about such opportunities and at the same time earning good money, becoming rich.

[bubbagump]

Did they really need a study to figure this out?  If all it took to be rich was to be intelligent, high IQ societies like mensa or triple nine would be social groups of the richest of the rich.  Instead, you have everything from unemployed housewives to celebrities to garbagemen and everyone in between claiming membership.  If intelligence was the sole determining factor, or even much of a factor at all, people like the Kardashians would not be millionaires.  The reality is that the only thing that one needs to be wealty is luck.  Being in the right place at the right time, whether it's by being born to wealthy parents, being born with a particular set of genes, meeting the right connections,  or even just reading about something called bitcoin in 2009 means that you're significantly more likely to live a life of luxury.

I haven't read this entire thread, but I'm sure that somebody has brought up examples of geniuses who have acquired vast wealth, and used those as justifications for their belief that meritocracy is real.  Here's something for these people to ponder: would Bill Gates be a name synonymous with ultra-wealth if he'd been born 100 years earlier?  Would Michael Jordan be a name known by people in all corners of the world if he'd been born in Burkina Faso?  Would Warren Buffett be who he is if Benjamin Graham hadn't influenced his life?

"There but for the grace of God, go I" sums it all up pretty well.  God, luck, fate, whatever you want to call it, is something that is outside of anyone's control, and it dictates a heck of a lot more than most people are willing to admit.  Who we are as individuals, the actions we take or don't take, and even the thoughts and emotions that we have are the result of a countless number of factors that were outside of our control, let alone monetary wealth.

[bowals]

i remember reading one of Gladwell Malcolm books which suggested this. Although his argument was riches was determined by chance and intelligence , with talent (he defined talent as spending more than 10.000 hours on any given activity of choice )
He went further to state that intelligence plays a role although the graph is a dumbbell shape. IQ of greater than 130 doesnt equate to success or wealth gathering.

[UchihaRukawa]

I don't think so!life is full of challenge and dream's and with right decisions you can achieve your bright future.life can be measured by your actions of today..we all deserve goodness of Life but many us are not willing to take the challenge of life and easily give up... believeing and determination push our way to success.

[bitkanu]

I don't think so!life is full of challenge and dream's and with right decisions you can achieve your bright future.life can be measured by your actions of today..we all deserve goodness of Life but many us are not willing to take the challenge of life and easily give up... believeing and determination push our way to success.

Umm yeah, taking the right decision, believe me or not, it's depends on your luckiness which is part of the chance, so it's pretty much all is determined by the chance, even some says that such things already someone's else fate from the very beginnning, being intelligence, is useless if you are in the wrong place and in the wrong time, luckiness is what all matters, atleast from me.

[zenfo]

Some people are becoming rich because of their abilities not by intelligence. But it is just a plus factor that you are a skilled and a intelligent person. but chances? yes I do believe in it, If you have it then grab it.

 Not all people have the same opportunities, regardless of their intelligence or talent level, thus, the luckier ones may end up with a better paying job while having less qualifications than someone else. There are many factors that can affect someone's life, such as place of birth, family and generally all surrounding environment...

[fivefingers]

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.

Though this is true, I don't completely agree with this statement.

This is where I'm coming from. In life, you get what you deserve. One way or another, something you've done will come back to you whether it be good or bad. You may think it's the same as karma and maybe it is, maybe it's not. All I'm saying is, whatever you are doing right now, there will be consequences. And if you are doing whatever you can to be successful in life, you will definitely be successful. And if you want to get rich in life and is doing everything you can rich, then you will be.

At the end of the day, what determines whether or not you will be rich is not being just knowledgeable and smart, whatever you call it. It's your decisions and actions in life.

[DrGuns4Hands]

If you work of full of efforts now and work hard for it then someday you will see the better opportunity that you will have and once the opportunity knowck on you then grab it without any hesitation believe me all your efforts would be paid once you work for it. If you have perseverance then you will have a brighter future.

[IamSaitama]

You can be rich by chance, by hardwork, by passion, and by talent. But God has already written something for you. And everybody is suited for something. You could be rich by hardwork as long as you are passionate on being rich. Because you cannot be rich by chance if you would not stand and try to make some money but you could be rich from the start and be lazy and still be rich. And when you get rich by talent that means you are destined to be rich. You know the ways and how to get lots of money not just enough but lots of it.

[fight-T]

I think the opportunity to make a big contribution to human success and rich, intelligent too but if you are smart and work hard but the opportunity does not come to you, your life will still stand still.

[Kakawate]

First let me say that in what I have seen, the world is unfair, rich people tends to get richer and the poor becomes poorer. Yes it is unfair, but we can never take away the truth that most of the intelligent people have the hinger chance in being rich, but we can never take away the power of luck, luck is a skill as other says, the world is unfair to everyone and I think that is what Makes the world fair.

[nebuch]

Well to be rich is determined by chance but not all the time of chance will determine your future to be rich. In fact it is all about taking the opportunity once it comes on our way then the big chance is knocking at the door of your opportunity to shows up what you can whenever you are, whatever your mode, whoever at your sides you will not let the opportunity pass by. Intelligence is one of the ingredients but not the main components. What shall we do to those people who are weak but intelligent? What shall we choose those people who are intelligent but afraid of more things versus the person that are willing to give his best in order to make the business success no matter what.

[Uno17]

Statestically, it has a bigger percentage that becoming rich is more on chance, but it is more effective when associated with intelligence and hardwork. When the 3 factors are combined together the chance of becoming rich is very reachable and doable. But sometimes “fate” will always bring you to where you deserve.

[novsali]

To keep yourself closer to the financial finish line, there are a few common financial pitfalls you can avoid. Although you may fall short of the goal from time to time, knowing where you stand and where you are poised to land are incredibly valuable in being financially sound for the long term.

[panovnu]

The best financial advice taps into individuals in their twenties, when there is little debt, few obligations, and a high potential of earnings. Unfortunately, few of us are ever the financially responsible adults we want to be straight out of college.

[EiKaGlaShPriSAThWEl]

Not all smart students become rich. It is not always about the grades or the attendance. It is all about how we stand for our life. It is not also about the talent. Maybe we have our inborn talent but if we do not know how to used it, its non sense. We become rich if we put a hard work in our life, if we are not lazy, and if we know how to use our money.

[rodiono]

It's important to remember that no matter where you are on your financial journey - one of the lucky few in their twenties or one of the more common forty-somethings realizing that their savings account just isn't what it used to be - it's never to early or late to get started accumulating for retirement or even a down payment on a home.

[nazarovv]

Doing nothing is the only way to guarantee that you'll have nothing. On the flip side of the coin, you must also do everything in your power to get started investing right away.

[gasparyu]

Although no one is going to berate you for failing to start saving twenty years ago, it doesn't do any good to wait another twenty to get started. It doesn't matter if you have thousands of dollars in debt or are switching jobs for the sixth time in as many years. Meet with a financial advisor right now to learn what your next steps should be.