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Saturday, August 04, 2012

Luck vs. Skill

Robert Frank says the role of luck in determining success in the marketplace may be more important than we thought:

Luck vs. Skill: Seeking the Secret of Your Success, by Robert H. Frank, Commentary, NY Times: There may be no topic that more reliably divides liberals and conservatives than the relationship between success and luck. Many conservatives celebrate market success as an almost inevitable consequence of talent and effort. Liberals, by contrast, like to remind us that even talented people who work hard sometimes fall on hard times through no fault of their own. ...
Both ... have important implications for public policy, so it would be good to know more about how important luck actually is. Unfortunately, it’s an inherently tough question to answer. But recent experiments suggest that chance events may influence market outcomes far more heavily than previously thought.
The sociologists Duncan J. Watts, Matthew Sagalnik and Peter Dodds carried out some of these experiments, which Mr. Watts described in his superb 2011 book, “Everything Is Obvious* (*Once You Know the Answer).” Their work focuses on online markets, but it has much broader implications. It suggests that although market success does depend on the quality of a product, the link is extremely variable and uncertain. Even the best contestant in a product category may fail, and even the worst one sometimes wins. And for an overwhelming majority of contestants in the intermediate-quality range, they found success to be largely a matter of chance. ...
We always knew that it was good to be smart and hard-working, and that if you were born or raised with those qualities, you were incredibly lucky, just as you were lucky if you grew up in the United States rather than in Somalia. But the sociologists’ research helps us understand why many people who have those qualities never find much success in the marketplace. Chance elements in the information flows that promote that success are sometimes the most important random factors of all.
Of course, we should keep celebrating the talented, hard-working people who have succeeded in their businesses or careers. But the research provides an important moral lesson: that these people might also do well to remain more humbly mindful of their own good fortune.

    Posted by on Saturday, August 4, 2012 at 07:19 PM in Economics, Income Distribution | Permalink  Comments (55)


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