
If you’re rich, you’re more lucky than smart. And there’s math to prove it - lisper
https://www.pbs.org/newshour/economy/making-sense/analysis-if-youre-rich-youre-more-lucky-than-smart-and-theres-math-to-prove-it
======
whack
I'm sympathetic to the above viewpoint, but the argument presented in the
article sounds really dumb.

> _" But think about it, the authors suggest. If smarts and talents and even
> effort are so normally distributed and wealth is so abnormally distributed,
> what’s missing to explain the disparity? “We suggest that such an ingredient
> is just randomness,” write the authors."_

Just because talent is normally distributed, but outcomes are abnormally
distributed, doesn't suggest in any way that this is caused by randomness. A
winner-take-all game-format would perfectly describe the above phenomenon.

This can be trivially seen when the same logic is applied to sporting
competitions. _" If Tennis ability is normally distributed across the
population, how can we explain a small handful of players like Federer and
Williams winning an abnormally high number of championships? Clearly it must
be because they're more lucky than talented."_

~~~
Avshalom
Do you have any evidence that tennis skill is normally distributed?

~~~
im3w1l
The question whether it's normal distributed doesn't even make sense. Tennis
skill and intelligence are both Ordinal Scales.

IQ is normal but that is just because we take everyones intelligences and
assign them to a value from a normal distribution.
[http://www.mymarketresearchmethods.com/types-of-data-
nominal...](http://www.mymarketresearchmethods.com/types-of-data-nominal-
ordinal-interval-ratio/)

~~~
tpeo
What do you mean by an ordinal scale, and what does that imply? I'm completely
blind on this usage of the expression.

~~~
paulddraper
It means that values are ordered, but not really numbers.

E.g. what does 2x better tennis skill mean?

An under that idea, the distribution curve doesn't really mean anything.

~~~
tpeo
It would mean what this particular variable has been operationalized [0] to
mean. Once upon a time things such as _" heat"_ were just words, and as words
they were used in a variety of different implicit senses in which at the time
people didn't distinguish -- for whatever reason -- but that people thought
that nonetheless were informative about the thing in question. Which is to say
that words were used as heuristics, partly as reasonable descriptions, partly
as expressions of gut feelings. With the association of heat with thermal
expansion and the development of better apparatuses (e.g. the ordinary mercury
column thermometers) as well as the diffusion of this concept among laymen
though stuff such as weather prediction, it became the most salient form of _"
heat"_, and thus the standard use of the word when unqualified came to mean
just that: what a thermometer reads. But other forms of heat i.e. the personal
feelings of heat associated with climatic comfort, or the action of capsaicin
or even wounds -- and this is the origin of the word _" inflammation"_ \--
came to be used only when qualified. These are all said to be _" subjective
heat"_. Now, I can only claim that all that I've said is merely opinion, since
I haven't quite yet worked out to properly cite just who might have said this
prior to me and for what reasons -- and which I currently wont, because it's
scattered over stuff and I don't know even how to begin -- so this is all
provided as is.

About ordinality, as opposed to cardinality, I can only say that I didn't see
the connection at the beginning, but now that I've thought a little while
about it, it does seem like a philosophically uncomfortable idea. But I'm not
going to be the one to say _why_ , at least not now.

[0]:
[https://en.wikipedia.org/wiki/Operationalization](https://en.wikipedia.org/wiki/Operationalization)

------
trappist
The model assigns opportunities every 6 months for 40 years and decides
whether the talents of the potential beneficiary are adequate to exploit the
opportunity.

It doesn't work this way. People waiting for opportunities don't encounter
them with the same frequency as people actively looking for and/or trying to
manufacture them. An opportunity for me to double my assets or income might
exist, but will I even be aware of it? If I am, and my talent is adequate to
exploit it, what kind of risk does it come with and what is my tolerance for
such risk?

The last event in my life roughly conforming to the opportunities generated by
this model was something I actively sought, carefully selected among hundreds
of similar opportunities, and took enormous (stupid, I'd be saying now if it
hadn't worked out) risk to exploit.

~~~
tpeo
I think the whole point of the paper which the writers at PBS might have
glossed over is simply _" we can reproduce this outcome with an extremely
simple set of hypotheses"._ That's how I read it, at least, and that's
something that's bound to cross the mind of someone familiar with agent based
modelling. And if all they want is produce a power law distribution over
income, that's all they need. Further model complications only become relevant
if they lead off to new conclusions, or different outcomes from the generally
expected outcome under particular circumstances. What you're suggesting would
be, on the simple basis of some academic pragmatism -- and the fact that they
still have to start from _somewhere_ \-- left to further studies, adding stuff
to this model while citing the original paper.

But all that you're suggest would indeed bring back at least some degree of
agency to the whole thing, even if just as being able to find, sort and act
upon opportunities.

------
tristanj
Some criticisms I have read about this paper include:

1) Their model assumes all persons start with the same initial wealth/capital,
which is not true in real life

2) The model also assumes people's talent/ability remains constant and does
not increase as they get older

In the end it is a model, and models are limited in how much they can match
the real world. I do not believe the paper actually "proves" the hypothesis
that "If you’re rich, you’re more lucky than smart" as the pbs.org title
implies.

~~~
jweir
As I have gotten older, I have made more money and gotten wealthier. My skills
have increased, my knowledge has increased, and I am more valuable.

Did the authors look at wealth as something that is static and to be
distributed? Or did they look at it as something that can be created (or
destroyed)?

I reckon they have never actually ran a business or created any wealth
themselves - but that is just a guess.

~~~
jonathankoren
It's trivial to find someone that has equal skills that have either more
wealth, or less. In fact, longer term studies have shown that wealth is
inherited, and it takes I believe four generations to change from the lowest
to the highest economic quintile. All of this is easily quantified, and has
been repeatedly studied. The results are just sociopolitically unacceptable
mythbusting. Read the wikipedia article on socioeconomic mobility [0], or
perhaps the article about the economist that setup identical real world
experiments, and found success was random chance.[1]

Anecdotally, the vast majority of the money I've come across in my life is
pure luck. Skills, education, and not a sufficent (or even a necessary)
condition of gaining wealth.

[0]
[https://en.wikipedia.org/wiki/Socioeconomic_mobility_in_the_...](https://en.wikipedia.org/wiki/Socioeconomic_mobility_in_the_United_States)
.

[1] [https://www.npr.org/2014/02/27/282939233/good-art-is-
popular...](https://www.npr.org/2014/02/27/282939233/good-art-is-popular-
because-its-good-right)

------
arnold8020
I believe that the situation is simpler and more powerful than what the
article claims.

Basically you need two things:

1) Some slight advantage

2) The network effect, that is, for example, the probability of competing
depends on the current winnings.

If you have these two things, you get 80-20 like distributions, you get the
explanation for why winners keep winning. If you are interested, you can find
my simulation and analysis at

[http://www.cs.toronto.edu/~arnold/research/80-20/](http://www.cs.toronto.edu/~arnold/research/80-20/)

Kind of shocking how well this works. The intuition is, why has Coke won, well
they had some initial advantage, and so they won a bit. Now that they have won
a bit, they can finance themselves into more competition. For example, they
can place themselves into more stores, into more restaurants etc. Now they get
a chance to compete more. When I run with rules:

r1) Actors have normally distributed abilities,

r2) Actors are chosen randomly based on current winnings, the more you have
won, the more you compete,

r3) Winner of competition wins one point from the loser,

You get interesting results, for example, in the two columns below, the left
is Household income in 1970 broken into quintiles. The right column is
simulation results.

    
    
        4.1%                         6.7%
    
       10.8%                        11.5%
    
       17.4%                        16.0%
    
       24.5%                        23.3%
    
       43.3%                        45.6%
    

Interesting how well the top 3 or 4 quintiles match between the simulation and
the real world data.

If you run the simulation with different rules, the real world quintiles do
not match the simulation quintiles nearly as well. You can tweak the
simulation to see this as well.

The simulation can be tweaked to handle cases such as inheritance, so an actor
with different ability inherits the wealth of a past actor. When I run this
simulation, around 80-90% of top 20% actors lose all wealth in 3 generations.
See for example:

[https://www.theglobeandmail.com/globe-investor/globe-
wealth/...](https://www.theglobeandmail.com/globe-investor/globe-wealth/..).

------
stephengillie
_...having been born on 3rd base, she (or he) grew up thinking she had hit a
triple..._ \- (Various, 2013)

------
imgabe
_But think about it, the authors suggest. If smarts and talents and even
effort are so normally distributed and wealth is so abnormally distributed,
what’s missing to explain the disparity?

“We suggest that such an ingredient is just randomness,” write the authors_

I think it's more due to the power of compounding. If you're a little tall,
that doesn't help you get any taller. But, if you get a little rich, that
helps you get richer, which helps you get even richer, and so on.

------
pmoriarty
So many people assume that everyone wants to be rich. Some people don't. Many
of the smartest never chased money.

------
bmcusick
And if you’re smart, that’s luck too. I didn’t earn my IQ.

~~~
tnzn
Meritocracy man.

------
swsieber
See also, the book "Outliers".

The example from that book that stood out to me is that most professionAL
hockey players have their birthday in the first 3 months of the year. It's
suggested that's because when tryouts happen, those children in their age
group are the oldest, and therefore most skilled at the time of selection for
grooming (well, focused training for their team).

In short, yeah talent is good, but often _skill_ is the result of some luck
factor amplifying your talent.

------
jeffdavis
"Lucky" has a negative connotation. Is there a better word that implies
something closer to "he made good choices and they worked out even better than
expected" or at least something neutral?

------
jeffdavis
What is the distribution of good choices? Those aren't luck or smarts or
effort, but they matter.

------
tpeo
tl;dr path dependence.

