Luck

Rick's lovely account of how computers enabled him to write should remind us of a more general point - that luck determines pretty much all of our economic fate.

The standard Mincer equations express individual earnings as a function of schooling and exprience - and, in more sophisticated versions, of personality or cognitive skills as well. Even these leave a huge chunk of earnings' varation across individuals' unexplained - suggesting that luck plays a big role*.

However, these equations under-estimate the role of luck, because luck helps determine how much human capital we acquire in the first place. I'm thinking of several mechanisms here:

 - When you were born. Rick was lucky enough to be born near enough to the computer age.Had he been born a few decades earlier, he'd never have unleashed his writing "talent.**" This point extends. In the 50s, only a few people could get to university. Now, many more can - which gives late developers especially more advantage. (It is of course, trivial that when you were born also affects the returns to your human capital; top footballers and CEOs earn more now than 40 years ago because their skills are in demand, not because they are necessarily more skilled than their predecessors.)

 - The month you were born in. People born in September earn more than those born in the summer, perhaps because they are bigger and older for their school year, and so do better at school.

 - Where you were born. I'm rich because I was born in England, not Ethiopia. Herbert Simon estimated that at least 90% (pdf) of the incomes of western individuals are due to this fortune of birth.

 - Genes. Michael Young described meritocrats as members of the "lucky sperm club." He was surely right. If I'd inherited my dad's criminal tendencies rather than my mum's unimaginative sense of duty, I'd be very different***.

 - Child poverty. Children from poor homes do worse in school (pdf) and later life - on average! - than those from wealthy homes. Although this doesn't seem to greatly affect life-satisfaction in adulthood, childhood emotional health does.  

 - The luck of getting a sympathetic teacher or good role models. Pretty much every successful person can point to these, surely.

 - Chance meetings. Harry Markowitz has said that a "chance conversation" led him to study portfolio theory for which he won a Nobel prize. The story is surely typical; how many of us got valuable early experience simply because a job interviewer liked the cut of our gib, or were denied it because he didn't?

I suspect that pretty much all the differences between our incomes are due to luck; a capacity for hard work is also a matter for luck. We do not "deserve" our economic fate, and only the most witlessly narcissistic libertoon could claim otherwise.

Now, it doesn't follow automatically from this that the tax system should equalize incomes. As Nozick argued, people can be entitled to things they don't deserve. And justice is not the only virtue; efficiency might require some differences in post-tax income.  

What it does mean is that the rich and successful should be more humble.

* The low R-squareds aren't necessarily all an indicator of luck. Earnings might vary for people of similar human capital because of differences in their choices of compensating advantages.

** The scare quotes are because of my scepticism about the nature of talent, not because of any lack of esteem for Rick.

*** I don't know if criminality is heritable, and don't much care; I'm speaking loosely.

Comments

[Luis Enrique]

If you are going to distinguish between various potential explanations for outcomes
1. effort
2. ability
3. luck
I think you need to be careful not to redefine endowments like ability and a propensity for effort as luck too, otherwise you've begged your question. I see the sense in which 1 and 2 are luck, but it's worth distinguishing between the role of luck conditional on endowments, and the luck of endowment.

Although sometimes we wish to distinguish between types of endowment - for example notions of innate ability versus being born into a advantaged/disadvantaged family.

of course many people might have had similar conversations to Harry Markowitz, but only Harry Markowitz went on to write down prize winning theory. You write that luck determines pretty much all of our economic fate, but one could equally emphasize the importance of being able to exploit luck when it occurs.

Imagine a situation in which everybody experiences a fixed quantity of lucky occurrences in their life time, and outcomes are determined by a random draw made on each luck occasion, whose distribution is a function of ability. Then everybody who enjoys good outcomes will be able to look back and say, I only succeeded because I got lucky. To make matters worse, lucky but unexploited occurrences - overheard conversations that would have inspired the likes of Markowitz - are not observed, so nobody thinks I had plenty of luck but failed to capitalize on it.

I am not suggesting this is the right way to think about how outcomes are determined, it is merely an example to demonstrate that experience and observation could easily lead us to overweight the importance of luck.

[FromArseToElbow]

We have to downplay the significance of luck because otherwise the basis of capitalism (work is rewarded, just deserts etc) is undermined, so it's a reasonable conclusion (given the world we live in) that luck plays a larger role than conventionally allowed.

[EpicureanDeal]

When discussing such matters, I think it is important not to conflate the concept of luck—which is normally defined as the confluence of happy (or bad) chance with the opportunity to exploit (or inability to avoid) it—with simple chance. I do not think most people would consider an illiterate hot dog vendor overhearing the conversation which led Markowitz to portfolio theory an instance of luck.

Likewise, I think it is dangerous to call native ability or a predilection to work hard "luck," even though it may have resulted from a confluence of chance and opportunity as well. There are plenty of talented, hardworking people who cannot in any realistic sense be considered lucky, and many of those are not even economically successful by conventional measures.

If you assume, along these lines, that luck is the overlap of chance with opportunity (or necessity), then I think it is a heroic and likely incorrect assumption that it is normally distributed over the course of one person's lifetime or even across an entire population. Even if the latter is true, that does not mean we cannot speak of lucky and unlucky individuals intelligibly.

[Luke]

"Likewise, I think it is dangerous to call native ability or a predilection to work hard "luck," even though it may have resulted from a confluence of chance and opportunity as well."

I'm struggling to see how "a confluence of chance and opportunity" is not luck.

Likewise I can't see why the same person can't have the good luck to be born with useful characteristics, but the bad luck to be born in circumstances where s/he is unlikely to receive much reward for those characteristics. Maybe such a person will get a lucky break, maybe not.

Sorry if I've missed something.

[Deviation From The Mean]

Every one of your examples is contingent on a countless number of other variables and cannot be sperated out into neat little packages.

But let us play your game anyway, just to make a point.

You could also have mentioned skin colour and gender (pretty significant examples I would suggest)

Of course if we created a society where those things didn't matter then they wouldn't come into the equation. If we created a society that wasn't about rewarding the 'winners' and sticking it to the 'losers' a lot of other factors wouldn't come into the equation either.

In other words what can appear as luck are often made by design.

[Quasimodo]

No, luck and chance are the same, despite your double talk -- which is so confusing that a reader can't even determine what you're arguing for.

[SelenesMom]

Luck is when I see an opportunity, I like my chances, I act on the opportunity, and it works out.

Chance is when I see an opportunity, I like my chances, I act on the opportunity, and it does not work out as I had hoped. Assuming that I did everything else "right," then either I have miscalculated the odds of success (it wasn't really an 80% chance, it was only say a 50% chance), or today is the unlucky day that the one chance in a million of failure happened.

[rogerh]

Perhaps 'Snakes and Ladders' is an analogy. In this game the snakes have an especial appetite for the poorer folk and eschew the fatter richer ones. The ladders also seem to be located where the richer folk can more easily find them. One suspects the game is a bit rigged.

Take a rather noisy politician who fell down a snake recently and then jumped right on to a ladder landing pretty much where he was before. Or a certain lady chef who seems perilously close to a snake's jaws, but I strongly suspect said snake will ignore her.

So, snake and ladder-wise, is the problem one of habitat or an insufficiency of large hungry snakes?

[Sam Watson]

Luck, as invoked here, is used as a deus ex machina and ends up being just a synonym for unexplained variation. You could talk about the 'luck' of birth as if I could have been born as someone else or in different circumstances in such a way that there are various hypothetical people waiting to be allocated a birth, but I don't think that is of much use. Alternatively, there is the luck related to whether the action we choose to take goes according to plan. But, it is not strictly a role of the dice, the set of possible actions and the set of possible outcomes are constrained by social factors. One of your examples is getting a good teacher - but sociological evidence shows that middle class children can better anticipate a teacher's wants and teachers respond better to these children, thus the teacher is 'better' for them.

There is certainly room for some causal luck - what Nagel calls luck in “how one is determined by antecedent circumstances". This could be reduced to a free will debate. But, I think that this has even less of a place than you make out. You do not say that a smaller income could be the result of choice - people may sacrifice income to do something that they have reason to want to do. A theoretical physicist could remain in science for his next job or go to the city and work in finance - neither path is unusual.

The role of luck is important for policy making; many liberals ascribe to a luck egalitarian point of view whereby the state 'irons out' the differences associated with circumstances of birth, and then what happens next is the responsibility of the individual. One example is the allocation of healthcare. But, this ignores the role of the social in constraining action; equally I think your analysis doesn't very well accommodate either agency or the social.

[Procyon Mukherjee]

How can we forget Seneca's comment that "Luck is a matter of preparation meeting an opportunity"; we cannot ignore the role of preparation in outcomes. This is where the treatise has gone wrong that we have forgotten that out of those who go to war and who survive among them what differentiates them with those who do not survive is preparation. Same is true in other examples in life.

[Churm Rincewind]

Certainly luck is a massive determinant of our personal situations. But I don't accept the point that any subsequent inequality is beyond our control.

The OP cites Ethiopia, where the per capita income is US$410. If we really cared about inequality we could all do something about that. It's easy. Just send money - a small amount in UK terms is transformative in that part of the world.

So, hands up here who actually does that (or similar)?

I thought not.

It's so much easier to bemoan the fact that our wealth is a result of chance than actually to do anything about it.

[Marcsobel]

Sounds like a job for the Drake Equation methodology.

[BenSix]

This helps to explain why I am something of a conservative and something of a leftist. I am somewhat conservative in part because I think that people are unequal, and I am somewhat left wing in part because I think people this largely because of forces beyond their control.

[Gaddeswarup]

Apparently, there is some technology on the way http://www.theatlantic.com/magazine/archive/2013/12/theyre-watching-you-at-work/354681/

[Skwosh]

I feel rather sad that I can no longer admire Einstein, or a para-Olympian, or a working-class hero like Aneurin Bevan. If I understand what is being said here correctly then they were all just *lucky* – with their genes, with their background, their connections – or something or other compared to their peers. They only 'worked hard' – strove – because they were able to, through luck. Nothing to admire there then – maybe just something to stand in awe of – or perhaps even to be in envy of. So unfair really that such people had their cosmic dice rolled to make them Randian super-people who would presumably have succeeded irrespective of the choices they made because the choices they made were all just part of the process – part of the luck.

Or – if not – how do we tell the difference?

What *can* we hold people responsible for – if anything? What actions can a person take in their life, in the writer's view, that ultimately can *not* be attributed to luck?

If we are to abolish the idea of personal responsibility all together – kill free-will – and instead say that everyone is a victim/beneficiary of circumstance, accidents of birth, genes and the vagaries of chance – that we are all little deterministic robots – then the bad things and the good things that we do are neither our fault nor our responsibility.

We can't rationally admire people any more – nor hold them accountable for their actions or inactions – because it's all down to luck. If we can't hold people responsible for their failings and shortcomings then presumably this means we can't despise people for the bad things they do either. So no blame or responsibility ever for anyone to whom something bad has happened, and no responsibility ever to anyone we don't like to whom something good has happened (e.g. business people) – but does this not also mean by extension no blame or personal responsibility for people who do bad things either – no blame for Stalin, or Bush, or Thatcher either presumably – they were just doing what they were destined to do by another of fate's dice rolls.

Or are we saying that people with more choice can be held more accountable? So, for example, if a rich guy (let's say he was born into money – and played at being an evil hedge-fund manager in his youth) who then blows it all on hookers and coke and ends up destitute on the streets is more blameable, more *responsible*, for his poverty than someone who was born into poverty? Is that allowed?

I find myself faced, on the one hand, with juvenile Randian pre-destined determinism from The Right, and on the other hand with this seemingly equally juvenile (in its desire for the world to be simpler than it actually is) cosmic dice-throwing determinism from The Left. Rather like Eddie Izzard's 'looking cool' circle of fashion it looks to me like the two extreme ends are actually meeting up.

For a while now I've been perplexed by the growth of 'networking'. To me it seems to be a kind of sanitised middle-class re-branding of what used to be called corruption. However, I guess if you believe that it's all down to luck – which includes *who* you know – and you believe that ideas like advancement through 'so called hard work' and meritocracy-as-a-social-goal are just distasteful delusional fantasies then corruption makes perfect sense – if it's all arbitrary anyway then why not make your own luck – if there is no such thing as a 'better' person for the job then it may as well be you, and so it doesn't matter if you need to suck-up to someone to get it – there is no such thing as an 'unfair advantage' any more – *all* advantage is unfair – because it's all down to luck?

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[Jim Henley]

There's some classic right-wing FUD on display in the critiques of this post.

1. "It's not 'useful' to look at luck this way." Not useful to whom?

2. "Why not give all your own money to an Ethiopian, libtard?" As always, the only inequality over which conservatives profess moral concern is between non-rich westerners and non-rich non-westerners. Conveniently, this entails no action on the part of the well-off westerner.

3. "Some Roman said a thing." How nice that he did. So what?

4. "Oh Noes now I can't admire Einstein/Lily Allen/the pretty flowers!" Sure you can. Admire the hell out of them. Meanwhile, we've got questions of political economy to settle. Whole 'nother thing.