Consider the most successful person you know. A surgeon, a real estate magnate, an oil tycoon? Given the opportunity to guess, what percentage of their success would you attribute to luck?
Prominent economist Robert H. Frank tries to throw more light on this question in his new book Success and Luck: Good Fortune and the Myth of Meritocracy.
What it takes and how to succeed are questions that have plagued man from time immemorial. The drive to succeed sits at the core of man’s evolutionary imperative and is the backbone of many of our everyday activities. One only has to look at the popularity of magazines like Forbes, Inc., and Entrepreneur to understand how central this theme is.
The issue of how much luck features or not in success also features in the political debate where it divides off significant sections of the populace and policymakers.
Members of the populace that lean towards conservatism correctly highlight that people who become successful and accumulate significant fortunes are almost always hardworking and intelligent. However, liberals are quick and correct to point out that many people who have similar characteristics but never succeed in earning much.
In Success and Luck: Good Fortune and the Myth of Meritocracy, New York Times economics columnist Robert H. Frank argues that wealthy people often fail to appreciate the cardinal role that luck plays in their success.
Frank believes that this skewed conception of success makes the wealthy less likely to support taxation designed to fund public infrastructure for the good of all.
It may be easy to refute Frank’s claims with the “luck favors the prepared mind” argument. However, before making up your mind, consider the following research report that highlights how success is often heavily skewed by seemingly trivial statistics:
According to data from The World Bank, about 50% of the differences in income across people of the world can be chalked up to their country of residence and their income distribution within that country.
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The Winner-Takes-All System
Think of a sports tournament like the Gran Prix or PGA Masters. In such setups it is typically the highest-rated player who gets its all – the fame, the price, and the endorsements, this is the winner-take-all system.
Even second place gets nothing or significantly little compared to the first placed man. This system also often applies in other spheres of life like in the economy.
This imbalance in the distribution of available resources is the central theme of Frank’s previous book and one which he continues to build on in Success and Luck.
In winner-takes-all systems, all it takes is for a little luck to push things in your favor for you to have a marked advantage over the rest. Even worse, these advantages quickly compound for those at the top of the food chain as you gain access to more opportunities that the lower placed individuals can’t.
Frank argues that the winner-take-all society, combined with random occurrences of luck, can quickly misallocate resources and cause grave inequalities in the distribution of income.
Testing for Luck
While the author lays down arguments that are indeed a cause for concern, it also raises the question of whether the most successful people are just the luckiest.
In an attempt to simulate a test of this issue, Italian physicist duo Alessandro Pluchino and Andrea Raspisarda teamed up with economist Alessio Biondo. The team attempted the first-ever test to quantify the role of luck and talent in the successful careers of individuals.
To represent the distribution of luck and talent, the team proposed a “toy mathematical model” that simulated the development of the careers of a collective population over a work-life of 40 years (age 20-60)
The researchers began the test by sticking 1000 hypothetical individuals (agents) into a square world. The agents were allotted random degrees of “talent” to help them progress throughout their careers.
The researchers defined talent as the set of personal characteristics (such as creative thinking, skill, motivation, emotional intelligence, determination) that allows a person to exploit lucky opportunities.
All the agents began the simulation with ten units of success each. Every six months, in simulation time, the individuals were exposed to a random number of lucky and unlucky even. When an individual encounters an unfortunate event, their success is reduced by half.
On the other hand, if they catch a lucky break, their success is multiplied by their talent. The multiplication of success by the talent figure is meant to represent how ability interacts with opportunity in the real world. Talented people are more likely to exploit an opportunity more efficiently.
After simulating 40 years of activity, the researchers reach a conclusion that surprisingly paralleled the reality in many real-world situations: the simulation replicated the well known Pareto Principle.
At the end of the simulation, the 20 most successful individuals held 44% of the total available success while almost half of the total population ended with lower than the first ten units of success. This distribution is consistent with the real-world distribution of wealth and resources where the top 10 richest men own more than the most deficient 50% of the world.
The simulation found out what you may already intrinsically know: talent is not irrelevant to success. Typically, those with more exceptional talent have a higher chance of ending up super successful. Furthermore, most successful agents were usually at least average in talent.
However, talent alone was not sufficient, as the most talented individuals were seldom the most successful. In general average-but-lucky people garnered more success than more talented individuals who did not have luck on their side.
The most successful people tended to be above average in talent and extremely lucky, while a few with remarkable ability but the worst lot in luck ended at the bottom of the totem pole.
The result of this simulation rhymes with real-world data in suggesting that the role of luck and opportunity in determining the level of success of an individual is often not adequately appreciated.
The researchers highlighted the fact that resources are often disproportionately given to those already with significant success. This bias can skew the distribution of opportunities and make them unavailable, even for those who are the most talented. They argue that to give people more chances of success, you must create a stimulating environment that is rich in opportunities. Furthermore, you must set up a more efficient strategy for the distribution of resources, intensive education, and training.
Robert H Frank’s Proposed Solution
Frank’s proposed solution to this problem of underutilization of resources stems from his view that our consumption and use of funds follows our frame of reference. Frank offers a progressive consumption tax that helps create more funds for social development while maintaining our frame of reference.
In Frank’s view, placing a progressive consumption tax (above a certain minimum threshold) will not affect the happiness of the populace as each individual will maintain their relative position in the income hierarchy.
However, his proposed solution seems like a simplification of the whole matter.
In a critique of Success and Luck, Steven G. Horwitz highlighted that for Frank’s claim to be plausible, we would need to know if:
Whether increasing tax rates will increase tax revenues.
Whether tax revenue increases will, go to the things, Frank claims are essential or necessary as opposed to those that get politicians’ votes or lobbyists’ attention.
Whether tax dollars allocated to such expenditures would contribute to making the United States a better society with more opportunities.
Another criticism of his work is that Frank does not sufficiently distinguish between luck and opportunity. He also does not factor in the fact that turning chance into success is not a passive act as it requires people to act.
In recent years, several studies and books such as The Black Swan: The Impact of the Highly Improbable by risk analyst Nassim Taleb and The Success Equation by Michael Mauboussin and Frank’s Success and Luck have suggested that luck and opportunity play a more critical role in success than we recognize.
A look at all the hierarchical fields, including sports, music, science, literature, business, and financial trading, quickly shows that luck is often more important than we think. While talent does matter, data suggests that talent alone cannot paint a wholesome picture of why things are the way they are.