[ExI] Computer simulations show wealthy people are not better just luckier

Stuart LaForge avant at sollegro.com
Mon Jun 4 06:15:01 UTC 2018



A study which which dispels any illusion that society is any kind of
meritocracy by showing why wealth in society follows a power-law
distribution (80-20 rule) when every possible measure of human talent (IQ,
hours worked, etc.) follow a normal distribution (bell curve).

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

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

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

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

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?

Stuart LaForge

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