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Thread: If youíre so smart, why arenít you rich?

  1. #1

    If youíre so smart, why arenít you rich?

    https://www.technologyreview.com/s/6...s-just-chance/


    Spoiler:

    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 worldís 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. Whatís 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 coís 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. ďThe Ď80-20í 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,Ē 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 isnít what happens. The wealthiest individuals are typically not the most talented or anywhere near it. ďThe maximum success never coincides with the maximum talent, and vice-versa,Ē say the researchers.
    So if not talent, what other factor causes this skewed wealth distribution? ďOur simulation clearly shows that such a factor is just pure luck,Ē 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. ďIt is evident that the most successful individuals are also the luckiest ones,Ē they say. ďAnd the less successful individuals are also the unluckiest ones.Ē


    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 serendipityóthe role of luck in scientific discoveryóand 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


    So talent isn't irrelevant, but to get exceptional success, you need to be lucky. Maybe that isn't a surprise, but it might be neat to know for sure, that the rich aren't just so much smarter and harder working than the "regular" ones - just that they had a bit more luck. Maybe it could teach some people some humility?

 

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    Friendly Coffee Kzach's Avatar
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    I'm not rolling in money because I have a conscience, unlike the members of this board who both fail at being rich as well as being ethical.
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    EVOLVED: extra chromosome! Zappo's Avatar
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    At some level, this is to be expected, even obvious. I mean, in any model, as well as in real life, in order to be the top 0.01% at anything, you need to have just about every relevant factor going for you, including luck. The interesting bit is exactly what weight luck has, compared to merit.

    I'd expect some people to claim that most of the weight is on luck, and other people to claim that most of the weight is on merit, making these claims based on purely political reasons. In this sense, I applaud the researchers for attempting to actually reason on the issue in a scientific fashion. I don't think this result can effect any change, though, because the way everyone else reasons on the issue is strictly political, and reality, even if we could expose it, won't change their opinion.
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    Quote Originally Posted by Zappo View Post
    At some level, this is to be expected, even obvious. I mean, in any model, as well as in real life, in order to be the top 0.01% at anything, you need to have just about every relevant factor going for you, including luck. The interesting bit is exactly what weight luck has, compared to merit.

    I'd expect some people to claim that most of the weight is on luck, and other people to claim that most of the weight is on merit, making these claims based on purely political reasons. In this sense, I applaud the researchers for attempting to actually reason on the issue in a scientific fashion. I don't think this result can effect any change, though, because the way everyone else reasons on the issue is strictly political, and reality, even if we could expose it, won't change their opinion.
    Can we say this is scientific, though? Some researchers built a model where they put in what they thought was important and wrote some rules they thought reflect reality and tweaked those rules and parameters until they got a result that was reportable because it at least looked like reality and then make a surprising discovery. Even if honestly done, a model like this is full of assumptions and undetected bias. Did they change weights and see what happens to results? Did they tweak a parameter out of assumed bound (like make ability scale inhumanly) and what happens?

    Right now this is a computer program running a program full of unknown biases that had a result that, if we squint a bit, lines up with our preconceptions. That should <always> be treated with skepticism. Scientifically speaking.
    Quote Originally Posted by PWD View Post
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    I think ovi's right.

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    EVOLVED: extra chromosome! Zappo's Avatar
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    Quote Originally Posted by Ovinomancer View Post
    Can we say this is scientific, though? Some researchers built a model where they put in what they thought was important and wrote some rules they thought reflect reality and tweaked those rules and parameters until they got a result that was reportable because it at least looked like reality and then make a surprising discovery. Even if honestly done, a model like this is full of assumptions and undetected bias. Did they change weights and see what happens to results? Did they tweak a parameter out of assumed bound (like make ability scale inhumanly) and what happens?

    Right now this is a computer program running a program full of unknown biases that had a result that, if we squint a bit, lines up with our preconceptions. That should <always> be treated with skepticism. Scientifically speaking.
    Oh, I agree. Sociology is like that. At least they're trying. It's still better than shouting at each other "it's all luck!" or "it's all deserved!", which is the standard level of discourse on this topic.
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    Quote Originally Posted by Enkhidu View Post
    "It's not what you know, it's who you know," is a maxim for a reason.
    Or in the Chicago vernacular, "we don't want nobody nobody sent."
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    Quote Originally Posted by Zappo View Post
    Oh, I agree. Sociology is like that. At least they're trying. It's still better than shouting at each other "it's all luck!" or "it's all deserved!", which is the standard level of discourse on this topic.
    I don't really know it's any different, though.
    Quote Originally Posted by PWD View Post
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    I think ovi's right.

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