Intelligence? Talent? No, the ultra-rich got to where they're thru luck & brutality

Discussion in 'Economics' started by RewriteQuran, Nov 16, 2011.

  1. If wealth was the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire. The claims that the ultra-rich 1% make for themselves – that they are possessed of unique intelligence or creativity or drive – are examples of the self-attribution fallacy. This means crediting yourself with outcomes for which you weren’t responsible. Many of those who are rich today got there because they were able to capture certain jobs. This capture owes less to talent and intelligence than to a combination of the ruthless exploitation of others and accidents of birth, as such jobs are taken disproportionately by people born in certain places and into certain classes.

    The findings of the psychologist Daniel Kahneman, winner of a Nobel economics prize, are devastating to the beliefs that financial high-fliers entertain about themselves(1). He discovered that their apparent success is a cognitive illusion. For example, he studied the results achieved by 25 wealth advisers, across eight years. He found that the consistency of their performance was zero. “The results resembled what you would expect from a dice-rolling contest, not a game of skill.” Those who received the biggest bonuses had simply got lucky.

    Such results have been widely replicated. They show that traders and fund managers across Wall Street receive their massive remuneration for doing no better than would a chimpanzee flipping a coin. When Kahneman tried to point this out they blanked him. “The illusion of skill … is deeply ingrained in their culture.”(2)

    So much for the financial sector and its super-educated analysts. As for other kinds of business, you tell me. Is your boss possessed of judgement, vision and management skills superior to those of anyone else in the firm, or did he or she get there through bluff, bullshit and bullying?
  2. sle


    Now, that's what I call a statistically-significant sample size...

    Well, bluff etc is a skill of it's own. While I do agree that a large chunk of any performance is attributable to luck, it's a fairly easy statistical test to identify the non-random component. I have yet to see any serious, non-biased studies.
  3. Humpy


    Behind every successful man used to be a capable woman, but women have got so stroppy lately I would like to change woman into capable gopher/secretary/man Friday sort of helper.

    I don't think Steve Jobs etc. had all their bright ideas etc. on their own - do you ?
  4. "chimpanzee flipping a coin."

    Does anyone know if that chimp has opened a hedge fund yet? Sign me up!

    I think every trade is a mixture of luck and skill and in the long run the luck cancels out and only the skill is left. The problem cited is that we can't know if luck or skill is driving the success until many many trials have past.

    Most wealthy people (who are wealthy over many trials) that I have met have similar goals and drive. Some have been in the right place at the right time but didn't give the money back. A few are not very nice or very moral but the majority are not "brutal". Do you have stats to support your case?

    The study on wealth advisors is non representative in my view since they get paid for telling people what they want to hear. Let's have a similar study on people who trade their own capital or have worked their way up through the ranks to see if they are brutal or lucky.

    Decades ago, when I started the path to successful trading, I also looked for a good advisor. the magazine I subscribed to had an annual prediction and I tracked for 5 years to see that nobody won it twice in a row. I learned from that and decided that I had to do it myself since few could tell me how to do it. That incite proved to be true for me.

    Bottom line, I agree with the "wealth advisors" study conclusions, I would like to see another study on "wealth creators" which should come to different conclusions.

    Let's not hate them for being wealthy. We are a tolerant society after all.
  5. Pekelo


    Let's hate them for being lucky....
  6. Interesting that he picked "wealth management"... the only "zero sum" business.... where only 50% would be above average by any measure... and that's before expenses. After expenses, the average manager underperforms the indices.. which don't have "fees".

    The highly skilled and successful money manager is a low percentage of all who so endeavor.... it's the nature of the beast.

    He's probably correct about "those who made it big".. made a BIG play and got away with it. For each such story, there are likely 10 who made equally big plays and didn't get away with it... and about whom we rarely hear again.
  7. Exactly. "25 fund managers have trouble beating the S&P 500. Therefore, all wealthy people got where they are through luck and brutality."

    The real takeaway is the astounding lack of critical thinking skills (logic, statistics, economics, etc.) that allows people to buy into something like this. I'm sure it's popular with the mindless OWS crowd, though.
  8. Study based on 25 wealth advisers in a zero-sum game? (Actually negative-sum)

    Naive study. The advisers know that. They profit from exactly that. The clients also now that. They try to profit from that.

    The title is misleading, highly. Please correct it. Wealth advisers cannot be compared to pioneer inventors who created wealth.

    Stupid post. 0 rating.
  9. Humpy


    I have known about half a dozen wealthy people to call a friend - until it came to helping out a bit. They all scored 100% on the meaness test.
    The moral of the story is don't bother to befriend a wealthy person, they make lousy friends !
  10. What do you mean by "help out"... give you money?
    #10     Nov 16, 2011