In the financial market, the logarithms of asset prices are often modeled as a normal distribution. Elsewhere in life, many things are normally distributed: people’s height, education levels, talents, working hours in a day, etc. Success, as measured by wealth, however, is not normally distributed. In fact, it’s heavily skewed and follows the Pareto rule: 20% of the world’s population own 80% of the wealth. Indeed, the world’s 8 richest people have a total wealth equivalent to that of the world’s poorest 3.8 billion people.
Why is that?
In Reference [1], the authors showed that a large part of a person’s success can be attributed to luck. They used computer simulation to reach that conclusion,
In this paper, starting from few very simple and reasonable assumptions, we have presented an agent-based model which is able to quantify the role of talent and luck in the success of people’s careers. The simulations show that although talent has a Gaussian distribution among agents, the resulting distribution of success/capital after a working life of 40 years, follows a power law which respects the “80-20” Pareto law for the distribution of wealth found in the real world. An important result of the simulations is that the most successful agents are almost never the most talented ones, but those around the average of the Gaussian talent distribution – another stylised fact often reported in the literature. The model shows the importance, very frequently underestimated, of lucky events in determining the final level of individual success. 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. Our results highlight the risks of the paradigm that we call “naive meritocracy”, which fails to give honors and rewards to the most competent people, because it underestimates the role of randomness among the determinants of success.
We find the article very interesting. It
- Quantified and formally demonstrated the role of luck in one’s success.
- Proved the adage “luck happens when opportunity meets preparation”. According to the study, in order to become successful, a person has to be moderately talented and lucky events have to happen in his/her life. He/She is, however, not the most talented person.
The article raised the following questions,
- Is “the harder you work, the luckier you get” still true? Does working harder increase the likelihood of lucky events?
- How do we minimize the role of unluck, and increase luck in portfolio management practice?
- How can we do that in business and life in general?
To this effect, the authors also proposed some schemes for improving meritocracy in research funding,
…several different scenarios have been investigated in order to discuss more efficient strategies, which are able to counterbalance the unpredictable role of luck and give more opportunities and resources to the most talented ones – a purpose that should be the main aim of a truly meritocratic approach. Such strategies have also been shown to be the most beneficial for the entire society, since they tend to increase the diversity of ideas and perspectives in research, thus fostering also innovation.
References
[1] A. Pluchino, A.E. Biondoy, A. Rapisardaz, Talent vs Luck: the role of randomness in success and failure, Advances in Complex Systems, Vol. 21, (2018)
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