A man wears costume of the God of Fortune called Chai Sen Ye during celebrations of the Chinese Lunar New Year of the Pig at Dharma Bhakti temple in Jakarta, Indonesia, on Feb. 5, 2019.WILLY KURNIAWAN/Reuters
Mark R. Rank is the Herbert S. Hadley Professor of Social Welfare at Washington University in St. Louis. He is the author of the forthcoming book, The Random Factor: How Chance and Luck Profoundly Shape Our Lives and the World Around Us.
What shapes our economic fortunes? Perhaps what immediately comes to mind are attributes such as education, skills or labour-market experience. Demographics such as age and your parents’ socioeconomic status might also be considered.
Yet surprisingly, according to a wide range of social scientists, these factors are only able to explain about 35 per cent of the variance in earnings. In other words, 65 per cent of the differences in individual income defy our standard assumptions.
What, then, is the rest of the story in terms of how well we do economically? It turns out that a significant part of the answer has to do with luck. Randomness and chance are instrumental in shaping our career choices and earnings. Happenstance events such as chance meetings, missed telephone calls, being at the right place at the right time and many more can influence why we find ourselves in a specific job with a specific income at a specific moment in time.
Take the case of who becomes wealthy and who experiences poverty. It turns out that the random factor is very much in play. In a fascinating research article titled Talent Versus Luck: The Role of Randomness in Success and Failure, mathematical physicist Alessandro Pluchino and his colleagues were able to empirically quantify the relative importance of talent versus luck in terms of acquiring great wealth over a 40-year working-age lifespan. What they found was that the most talented people almost never reached the peaks of economic success – rather, the ones most likely to achieve the pinnacle of wealth were those with more average talents but who happened to catch a couple of lucky breaks.
Likewise for those experiencing poverty. Instead of a lack of motivation, much of poverty can be explained by the unlucky breaks that strike people over time. In fact, my research has shown that the majority of Americans will at some point in their lives experience at least one year in poverty, with much of the reason having to do with bad luck – a sudden health emergency, a factory shutting its doors, an unannounced cutting back of work hours, a car breaking down, and on and on. When such events happen, often out of the blue, they can send households into a downward spiral and into poverty.
These results splash quite of bit of cold water on the myth of meritocracy and wealth. Certainly, individual attributes such as talent and determination are important ingredients for material success, but just as important is luck. We might think of having a baseline level of talent and determination as a necessary but not sufficient condition for getting economically ahead in life. What is often needed beyond just talent and determination in order to be highly successful is luck. As Dr. Pluchino and colleagues write, the idea that we live in a strict meritocracy is patently false because it “underestimates the role of randomness among the determinants of success.”
The American economist Robert Frank has also written extensively about the role of luck with respect to earnings. He notes that although there are certainly cases of highly skilled and extremely hard-working individuals who become wealthy, “Far more numerous are talented people who work very hard, only to achieve modest earnings. There are hundreds of them for every skilled, perseverant person who strikes it rich, disparities that often stem from random events.”
Dr. Frank observes that the United States (and Canada as well) has become much more of a winner-take-all society over the past 40 years. This has resulted in a very small number of people seeing incredible gains in wealth while the rest of society has experienced economic stagnation. What separates the fortunate few from other equally talented individuals is being blessed with good luck. Dr. Frank writes, “The upshot is that with far greater frequency than ever before, seemingly trivial chance events give rise to spectacular differences in economic reward.”
So the next time somebody tells you that they deserve all the riches that have come their way, you might remind them to count their lucky stars.