Talent vs Luck

[john12ax7]

This is an interesting paper which attempts to quantify the role of luck in success. And there is also a video which references it for those that prefer watching.

I'm sure some will immediately dismiss it. But for those with an open mind there are profound implications in how we structure society and our own personal lives. Too often randomness is dismissed, where it is actually more correct to view the world from a probabilistic rather than deterministic framework.

https://arxiv.org/abs/1802.07068

 

[pucho812]

All life is luck. We see it everyday. It’s why you see the real talented musicians not get anywhere but the far less talented become stars. I could go on. But you get the idea.

 

[ruffrecords]

Over simplistic IMHO. Does not account for hard work or Darwinism.

Cheers

Ian

 

[JohnRoberts]

"Success occurs when opportunity meets preparation".

JR

 

[AnalogPackrat]

First, I've never seen this "myth" that wealth is correlated with talent. Very few people think anything like that. I think the premise is broken.

Second, what is "talent?" It isn't a one-dimensional value. Some people have tried to characterize different categories of skill or intelligence. Clearly there's a lot going on and not all skills or talents or intelligence types lead to wealth. Someone highly skilled at something that has low demand isn't going to get wealthy. Someone who has high skill in something where a lot of other people also have high skill is going to have to compete for wealth.

Third, as ruffrecords points out, some people have only average skill but are highly motivated, hard-working, determined. They don't give up easily and will often succeed because of this mindset more than anything else.

Fourth, chance favors the prepared mind. If a person gets a lucky break but fails to recognize it, or recognizes it but fails to act, that's on them. Motivated and intelligent people are more likely to recognize a lucky break and act on it. Luck does not interact linearly with "talent." His argument assumes it does.

Fifth, he fails to include bad luck. Bad luck strikes everyone at some point. Intelligent and motivated people weather it better because they see it for what it is and they've likely prepared for it (like having some liquid savings available in case you lose your job or have to deal with a major health issue). Unintelligent and unmotivated people have not prepared for bad breaks and get hurt worse by them.

Lucky breaks are like compound interest. Motivated and intelligent people invest early and continuously. They also take advantage of lucky breaks when they happen. A person may only get five or ten lucky breaks in a lifetime. Failing to see them or act on them is like getting zero. The motivated and intelligent folks recognize and act on a high percentage of lucky breaks.

He then whines about Elon Musk (which is apparently the true purpose of the video) and tries to equate wealth with success and financial loss with failure. Wealth is a poor measure of success in life and not the only reason people do things. Musk clearly has grown up and sees this. He bought Twitter to fix a big problem he saw, not to make a huge profit. He is a genius if you look at Space-X. He founded it and it has succeeded fantastically by any metric. Yes, he's hired and motivated thousands of employees to share their skills and effort to help make it a success. That's what good leaders do and it's the only way big projects get done (other than slavery).

To me the whole thing is misguided and poorly thought-out. He's obviously a loser who is jealous of other's success, wealth, and talent. He should go out and make things happen instead of creating thinly veiled hit-pieces like this. I'm sorry he got my click.

 

[crazydoc]

As the old saying goes, "The harder I work, the luckier I get."

 

[john12ax7]

Over simplistic IMHO. Does not account for hard work or Darwinism.

Did you read the actual paper? (The video is simplified). What is shows is that things like talent and hard work are necessary but not sufficient. Human traits follow Gaussian distributions, but success does not, it has fat tails so not strictly causal.

The reality is that humans overestimate causality and underestimate randomness. A good book on this is Taleb's Fooled by Randomness. As he puts it; "Mild success can be explainable by skills and labor: Wild success is attributable to variance."

 

[Matador]

The reality is that humans overestimate causality and underestimate randomness.

It's interesting how people are bristling about "talent", and "hard work", that somehow the presence of any outlier disproves the trend being discussed, which is that the distribution of wealth is not Gaussian, despite most major underlying indicators of a population that might be causally related to wealth are Gaussian. In order to translate a Gaussian distribution into a Chi-Squared distribution, implies relatively few random events multiply geometrically in order to skew the distribution that drastically (which is kind of his point).

 

[AnalogPackrat]

It's interesting how people are bristling about "talent", and "hard work", that somehow the presence of any outlier disproves the trend being discussed, which is that the distribution of wealth is not Gaussian, despite most major underlying indicators of a population that might be causally related to wealth are Gaussian. In order to translate a Gaussian distribution into a Chi-Squared distribution, implies relatively few random events multiply geometrically in order to skew the distribution that drastically (which is kind of his point).

I'm assuming you refer to my response which, if you bothered to read it did attempt to explain this. Why should wealth be a Gaussian distribution? Because you've been programmed to think that's the only "fair" thing in the universe? Fortune and misfortune play a role in every human endeavor. What matters is how the individual responds to the random event (or if it even registers on their consciousness in some cases). You can have all the good luck in the world and still fail if you can't recognize a lucky break and figure out a way to take advantage of it. And you can let a bad break ruin you by not being mentally, fiscally, and emotionally prepared for misfortune, something that all of us have in our lives at times.

Yes, good fortune can multiply geometrically if a person knows what to do with it. And misfortune's effects can be mitigated and minimized by those who prepare for it. How this is any real surprise is, well, the real surprise.

 

[cyrano]

A simple example: during Covid shutdowns etc. I watched several startups. Covid wasn't expected, so it's a random outlier. From the five restaurants I watched, only one was very successful. Two failed soon, two lingered on.

It took me a while to understand why. The wildly successful one had better relations with banks. His marketing was very good and he could ride out the storm. The two that didn't fail, had some money to keep them from failing. The ones who failed had little to no reserve capital. Despite some financial help from the govt, these two failed, but they didn't end with large debt. The people who tried to run these failed ones, just had bad luck. Covid. Otherwise they probably wouldn't have failed. But the good news is, these people aren't ruined. One of them already started again. This time with a dogfood shop

 

[AnalogPackrat]

A simple example: during Covid shutdowns etc. I watched several startups. Covid wasn't expected, so it's a random outlier. From the five restaurants I watched, only one was very successful. Two failed soon, two lingered on.

It took me a while to understand why. The wildly successful one had better relations with banks.

I'm guessing this entrepreneur didn't just luck into these relationships. He likely built them over time because he understands business and capital. He has business intelligence.

His marketing was very good and he could ride out the storm.

Another skill that was developed or a talent that existed. Not luck.

The two that didn't fail, had some money to keep them from failing.

Because they understood the need to prepare for tough times. They worked to build capital which enabled them to weather the misfortune of bad government policy (extended lockdowns, shuttering of "non-essential" businesses).

The ones who failed had little to no reserve capital.

Failed to plan or took a large risk with no safety net.

Despite some financial help from the govt, these two failed, but they didn't end with large debt.

Despite getting a lucky break (government bailout/stimulus) they failed.

The people who tried to run these failed ones, just had bad luck.

No, they failed to prepare for tough times, took outsized risks, cost their fellow citizens hard-earned money in the form of gov "assistance," and failed as a result.

Covid. Otherwise they probably wouldn't have failed.

No way to know, but unlikely they would be as successful as the first or even the other two given the evidence.

But the good news is, these people aren't ruined. One of them already started again. This time with a dogfood shop

Let's hope they learned something from the failure and don't need "assistance" again.

 

[JohnRoberts]

A simple example: during Covid shutdowns etc. I watched several startups. Covid wasn't expected, so it's a random outlier. From the five restaurants I watched, only one was very successful. Two failed soon, two lingered on.

It took me a while to understand why. The wildly successful one had better relations with banks. His marketing was very good and he could ride out the storm. The two that didn't fail, had some money to keep them from failing. The ones who failed had little to no reserve capital. Despite some financial help from the govt, these two failed, but they didn't end with large debt. The people who tried to run these failed ones, just had bad luck. Covid. Otherwise they probably wouldn't have failed. But the good news is, these people aren't ruined. One of them already started again. This time with a dogfood shop

Restaurants are a tough business..

Success in the restaurant industry isn't easy. The statistics aren't pretty. Sixty percent of restaurants don't make it past their first year and 80 percent go out of business within five years. ... You'll start the year with a 6.2 percent profit margin and end the year with only a 3.8 percent profit margin.

I doubt that is an accurate statistic for everywhere but consistent with my general understanding.

Here is a more credible stat looks like 15% failure rate https://www.webstaurantstore.com/article/934/top-reasons-restaurants-fail.html but 15% sounds a little low. Looking out my window at shuttered food place just down the street from me. I don't see it open to the public for meals anymore but I think the owner is still doing some catering.

Then there is the effect of governance. Areas with crazy high minimum wage regulations, like $20/hour (CA?) challenge the ability of existing restaurants to remain profitable. Entry level workers will increasingly be replaced by automation, but that requires capital. Another challenge to small shopkeepers is un-policed/un-prosecuted theft.

JR

 

[cyrano]

Bars are even harder, if you go by failure rate. But that's not because it is so hard. It's because a lot of people who are down and out, can't find a job, etc. start a bar, or go sell second hand cars. A lot of them have no idea how to run a business. Some don't even have an accountant.

I also don't think 20$/hr is crazy. Making workers depend on tips is crazy. If you can't stomach 20$/hr, you're in the wrong business.

I experienced the first example as a student, doing dishes in a 24/7 restaurant called "Campus", in Brussels. It was one of the better paid options in '80. I once asked why the owner paid relatively high wages. His answer was revealing: "To make sure they show up and make it impossible for the competition to steal my workers".

The restaurant still exists and still is profitable. Making sure your personnel doesn't go running because they make 10 cents an hour more elsewhere is a good business practice. The damage from loosing clients because you don't have the staff to pamper the client is not immediately repairable.

 

[AnalogPackrat]

Bars are even harder, if you go by failure rate. But that's not because it is so hard. It's because a lot of people who are down and out, can't find a job, etc. start a bar, or go sell second hand cars. A lot of them have no idea how to run a business. Some don't even have an accountant.

So they just didn't get a lucky break? Or they simply haven't developed the skills and knowledge needed to be successful in business.

I also don't think 20$/hr is crazy. Making workers depend on tips is crazy. If you can't stomach 20$/hr, you're in the wrong business.

Fast food. In normal times that sort of place employed teenagers and college students. $20/hr is crazy for that. It isn't a career. It's a first job when you have few skills.

I experienced the first example as a student, doing dishes in a 24/7 restaurant called "Campus", in Brussels. It was one of the better paid options in '80. I once asked why the owner paid relatively high wages. His answer was revealing: "To make sure they show up and make it impossible for the competition to steal my workers".

Is "Campus" a fast food franchise selling burgers for a dollar or two (equivalent)? What's the relative cost of living in Brussels compared to small town USA?

The restaurant still exists and still is profitable. Making sure your personnel doesn't go running because they make 10 cents an hour more elsewhere is a good business practice.

Yes, in many cases, better pay can do that. But if you have to raise your prices by 2-3x (we're talking going from $8-10 to $20/hr, not a 10c difference) you either go to automation or close, neither of which leads to higher employment.

The damage from loosing clients because you don't have the staff to pamper the client is not immediately repairable.

Fast food is about basic service levels not pampering.

 

[JohnRoberts]

Bars are even harder, if you go by failure rate. But that's not because it is so hard. It's because a lot of people who are down and out, can't find a job, etc. start a bar, or go sell second hand cars. A lot of them have no idea how to run a business. Some don't even have an accountant.

It is hard as anyone running one will tell you.

I also don't think 20$/hr is crazy. Making workers depend on tips is crazy. If you can't stomach 20$/hr, you're in the wrong business.

Entry level jobs are just that, the first rung on the employment ladder where kids learn how to work (namely show up every day, on time, and do what the boss tells you to do). Many, learn those lessons and prosper. Increasing the minimum wage higher just causes employers to cut back on those entry level positions, replacing them with automation where possible.

Merchants with pricing power will increase prices to cover the increasing costs. Chipolte increased prices 6 times since 2021. Brands without pricing power will increasingly adopt automation or fire workers. Pizza hut cut 1,200 delivery drivers. CA has lost some 10k fast food workers.

Gavin Newsom pushed for an exemption in the law for major chains that sell and bake their own bread as a standalone menu item in order to benefit one of his billionaire donors, and Panera franchisee, Greg Flynn. Newsom's attorneys have said the law does not exempt Panera but they have not said who exactly the exemption is for.

I have been writing about this for years (right here) and the major fast food chains are investing in burger flipper machines, and computerized ordering kiosks.... bye bye more entry level jobs. At my local Walmart I use self check-out replacing more entry level workers.

I experienced the first example as a student, doing dishes in a 24/7 restaurant called "Campus", in Brussels. It was one of the better paid options in '80. I once asked why the owner paid relatively high wages. His answer was revealing: "To make sure they show up and make it impossible for the competition to steal my workers".

Apparently his prices were high enough to support paying workers a premium wage. I washed enough dishes on KP (kitchen police) in the army. The army pay was well below the modest minimum wage back then (1970 federal min wage $1.70/hr) as I recall my first full month pay check was <$100 or $0.62/hr. As a kid my first minimum wage job (in a machine shop paid $1.25/hr).

The restaurant still exists and still is profitable. Making sure your personnel doesn't go running because they make 10 cents an hour more elsewhere is a good business practice. The damage from loosing clients because you don't have the staff to pamper the client is not immediately repairable.

But clients (diners?) will not accept unlimited price increases, Chipolte is an exception, others are cutting workers to keep customers coming.

JR

 

[cyrano]

It is hard as anyone running one will tell you.

Most of the self-employed business people I ever met said it was hard. Nobody ever said it was easy. If it was easy, anybody could do it, right?

Entry level jobs are just that, the first rung on the employment ladder where kids learn how to work (namely show up every day, on time, and do what the boss tells you to do). Many, learn those lessons and prosper. Increasing the minimum wage higher just causes employers to cut back on those entry level positions, replacing them with automation where possible.

Businesses with better employees do better. The only way to attract the better workers, is by paying them decently.

Merchants with pricing power will increase prices to cover the increasing costs. Chipolte increased prices 6 times since 2021. Brands without pricing power will increasingly adopt automation or fire workers. Pizza hut cut 1,200 delivery drivers. CA has lost some 10k fast food workers.

Neither of those are real restaurants...

These are franchising businesses. They'll screw anyone if there's a penny of profit to be made. Doesn't even have to be legal, as long as they can find an idiot to take the blame. Like McDo's soft-ice machines who are eternally out of order.

The latest franchiser who set sail to conquer these beaches, was very much astounded. He offered the existing local burger joints the chance to turn into a Burger King for free (including remodeling the premises), or stay with the existing name (and products). Only 4 out of 42 decided to go with the new name. One of these four already failed, another one will fail soon. Most of the 38 others are doing very well. The funny thing is that the map on the Burger King Belgium website lists them all as Burger Kings. When you visit, most are still "Quick". I used to do QC for them.

I have been writing about this for years (right here) and the major fast food chains are investing in burger flipper machines, and computerized ordering kiosks.... bye bye more entry level jobs. At my local Walmart I use self check-out replacing more entry level workers.

Typical franchises like these can do with entry level personnel and automation. A real restaurant can't. But even entry level personnel deserves to be paid a decent wage.

Apparently his prices were high enough to support paying workers a premium wage. I washed enough dishes on KP (kitchen police) in the army. The army pay was well below the modest minimum wage back then (1970 federal min wage $1.70/hr) as I recall my first full month pay check was <$100 or $0.62/hr. As a kid my first minimum wage job (in a machine shop paid $1.25/hr).

But clients (diners?) will not accept unlimited price increases, Chipolte is an exception, others are cutting workers to keep customers coming.

JR

Well, John, I never washed dishes or cleaned toilets in the army, despite being reprimanded more than the others. They made me guard munition depots at night once, but that didn't last long...

Strangely enough, real restaurants with one or two Michelin stars have gotten cheaper over here. Mainly because the real expensive ingredients are very hard to get, so they had to get creative with more mundane ingredients...

 

[john12ax7]

The "modest" 1.70 minimum wage in 1970 is 13.68 in today's dollars based on official CPI numbers, which if anything understates inflation. Federal minimum wage is 7.25, so it's not even modest anymore. So for decades the scales of lady luck have been pushed in business owners favor. Any competent business owner should have no problem running a business with 13.68. So what does that say about the ones who complain?

(Imo having a minimum wage is a subpar solution. But logic dictates if you are gonna have one it should be tied to inflation)

 

[john12ax7]

One thing about the paper is it is really about explaining the role of randomness in extreme outcomes, wealth is just a proxy. As mentored we see this all the time in music, and now have a mathematical foundation for it.

Then there are things like scientific research. If randomness plays at outsize role, then funding distribution is almost certainly suboptimal.

There are so many areas that need to be rethought when you properly account for randomness. But I suppose thoughtful introspection is no match for preconceived ideology.

 

[Matador]

The mathematics behind PDF's are fascinating, especially what kinds of forces are required to change their shape.

It reminds me of a professor that knew one of his classes was full of cheaters, when the Gaussian PDF that was expected for student performance suddenly became bimodal.

 

[john12ax7]

I agree. Another interesting area is forensic accounting. Turns out legit numbers tend to have similar distributions of digits, but cooking the books involves human patterns that skews them and becomes a red flag.