Tuesday, June 29, 2010

How large a role does luck play in our lives?

‘Let’s return to our touchstone: identical twins growing up together. They share their genes, they share their family environments, and they share their peer groups, at least on average. But the correlations between them are only around 50 percent. Ergo, neither genes nor families nor peer groups can explain what makes them different’ Steven Pinker, ‘The Blank Slate’, 2002, p.396.

The correlations that Pinker is referring to relate to intelligence, personality and life outcomes.

I read that passage for the second time a week ago and I have thought about it a few times since. The first time I thought about it was not long after I put my last post, Does parenting make a difference?, on my blog. In that post I neglected to mention that Pinker ended his discussion of parenting by talking about the important role that luck plays in our lives.

The next time was when I stumbled across a post I wrote last year, What determines whether we have successful lives? , in which I discussed Malcolm Gladwell’s book, ‘Outliers’. Gladwell seems to be arguing that exceptional performance can always be attributed to something other than good luck. I think he is probably wrong about that, but his book is a good read in any case.

The most recent time I thought about Pinker’s paragraph about identical twins was when I read Bill Easterly’s post, ‘How skill beats luck in the world cup of development’. Easterly’s point is that the World Cup uses a tournament of five matches to make skill beat luck. He calculates that the probability that a weak team that only wins 15 percent of the time will win the tournament is only 0.0076 percent. By contrast, a strong team that wins 85 percent of the time has a 46 percent probability of winning the tournament. I find it reassuring that despite the large random element in outcomes of low-scoring games (at least that’s how it appears to me as a fan of Aussie rules football) there is a high probability that one of the stronger teams will win the tournament.

Easterly translates his observation to economic policy as follows:
‘As this blog likes to frequently point out, economic growth has a lot of random variation. Over a short period of time (metaphorically equivalent to one game), a country with bad policies and bad institutions still might have a good growth rate. But over a long period of time (equivalent to playing many successive games), the consistent winners are very likely to be countries with good policies and good institutions. So in deciding whether a particular set of policies and institutions are good or bad, you need to look at long periods (tournaments) and not at short ones (single games). How long the long periods have to be will depend on how important luck is in the short term; the evidence we have on economic growth is that short term luck is very important, and the periods have to be pretty darn long for proper analysis.’

I thought that was well worth quoting, but patient readers who have got this far might wonder how it relates to the finding that luck plays a large part in determining outcomes at an individual level. The link that occurred to me is that whereas the ancients saw everything as being in the lap of the gods, these days there is a tendency to say that just about everything that happens at both individual and society levels is a result of human action.

When I hear people say, "You make your own luck", I tend to nod in agreement. But what does this mean? A glance at some of the things personal development professionals write about this on the internet suggests that it involves adopting strategies that tend, on average, to produce better outcomes. When countries make their own luck they adopt economic strategies that tend, on average, to produce better outcomes. In neither case does this eliminate the strong influence of luck on short-term outcomes. Making our own luck just moves the odds in our favour.

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