Understanding Richie Rich

Many successful individuals cite fate or luck as significant factors in their success. Between 1990 and 1995, the American professor of psychology Mihaly Csikszentmihalyi interviewed 91 extraordinary individuals. Throughout his study, he considered the role luck or serendipity had played in the success of his interviewees.[i] According to Csikszentmihalyi, “When we asked creative persons what explains their success, one of the most frequent answers—perhaps the most frequent one—was that they were lucky. Being in the right place at the right time is an almost universal explanation.” Luck, the author concluded, is undoubtedly a crucial component of creative discovery.[ii]

Meeting the right people was also important. Csikszentmihalyi profiled a successful artist whose works sold well and hung in the world’s best museums. According to Csikszentmihalyi, the artist once admitted ruefully that there were at least a thousand artists as good as he, but they remained unknown and their work unappreciated. The one difference between him and the others, the artist said, was that a few years back, he met a man at a party and got to know him over a few drinks. This chance meeting proved to be instrumental in the artist’s later success.[iii]

Similarly, Canadian journalist Malcolm Gladwell sought to determine precisely what it is that makes extraordinary individuals so successful. In his book Outliers: The Story of Success, Gladwell argues that exceptional success is not the result of superior personality traits or strategies, but of having worked extremely hard and enjoyed a great deal of luck.[iv] Just like Csikszentmihalyi, Gladwell highlights the role luck has played in the success of people like Bill Gates. “I was very lucky,” said Gates at the beginning of the interview in which Gladwell asked him about the reasons for his success.[v]

What does luck have to do with it? Is luck at the root of success any more than unfortunate coincidences are at the root of failure? Or is luck a second-hand explanation that fulfils other psychological needs?

THE ROLE OF HAPPENSTANCE

In books such as Gladwell’s, counterfactual assumptions are of great significance, even if these assumptions are not explicitly developed. The reader is constantly confronted with questions such as, “What would have happened if Bill Gates hadn’t had the opportunity to work on a large computer for free?” It is difficult to pursue such speculations to any kind of satisfactory conclusion. Would Gates still have enjoyed such incredible success in his field? And if not, would he have been equally successful in some other field as a result of specific traits, such as the combination of his extraordinary intelligence and his outstanding entrepreneurial qualities, or the strength of certain personality traits and his application of successful strategies?

Success is not primarily a question of the opportunities that present themselves to an individual, but is much more a question of whether an individual, firstly, even recognizes them as opportunities and, secondly, is able to make the most of them. It is likely that other people are presented with similar opportunities but either do not recognize them as such or fail to exploit them sufficiently, if at all. The novelist Max Frisch once said, “Chance shows me what I have an eye for.”[vi] Whether opportunities are recognized or used depends to some extent on “openness to experience”—one of the Big Five personality traits.[vii] Numerous studies have shown that entrepreneurs and wealthy individuals exhibit a higher than average openness to experience.[viii]

Also interesting in this regard are the findings of the psychologist Richard Wiseman, who investigated how people perceive the role of chance in their lives and how they react to unexpected opportunities. His observations demonstrate that extroversion correlates with an increased probability that someone will encounter unexpected opportunities and actively exploit them. According to Wiseman, anyone who claimed that they had been lucky over and over again was usually much more extroverted than others. This high degree of extroversion means that these self-declared “lucky ones” come into contact with far more people and, because extroverts are typically more open toward others, they more often benefit from information, feedback, and other helpful hints that raise their chances in almost every area of life.[ix]

Wiseman literally placed two opportunities in his subjects’ paths: one in the form of a banknote that he placed on the floor on the subject’s route to the research laboratory, the other in the form of a potential employer who approached the subject in a café to engage them in conversation. In Wiseman’s experiment, the “lucky ones” found the money immediately and engaged in enthusiastic conversation in the café, where they learned about a hugely interesting job opportunity. Almost all of the “unlucky ones” walked straight past the money and failed to engage in conversation in the café.[x] This demonstrates that the identification and exploitation of chance occurrences is also the result of certain personality traits and attitudes.

Books such as Gladwell’s, which attribute a large proportion of the success of people like Bill Gates or Steve Jobs to a chain of happy coincidences, have an inherent suggestive power because they lead readers to keep asking themselves, “If this single event or that one piece of luck hadn’t happened, what would have been different?” The more fortunate coincidences an author relates, the more likely the reader is to assume that the person they are reading about wouldn’t have been anywhere near as successful if they hadn’t enjoyed such a series of serendipitous events. This is, of course, possible, but it is impossible to prove.

It would also not be that difficult to identify a significant number of negative events or unhappy coincidences in the lives of these successful people that could only be described as bad luck. If, instead of being so successful, these individuals had actually failed, it would be just as easy to construct a suggestive sequence of unlucky events that could be used to explain their failure. But this would neglect the fact that it is far more a person’s reaction to events than the events themselves that leads to certain results.

The likelihood that someone would only ever experience either good or bad luck during their lifetime is very low. During the course of many years and decades, good and bad luck would be expected, on average, to balance each other out. Psychologist Donald Hoffman referred to this as “compensation theory,” whereby one coincidence is compensated by another.[xi]

Without a doubt, happenstance and luck do play a role in success, but this role varies significantly, depending upon the field of activity involved. While emphasizing the role of luck, investment strategist Michael J. Mauboussin admits that there are substantial differences between different fields and activities. He proposes a “luck/skill continuum” and introduces a variety of sports and other activities as examples. He places roulette at the “pure luck” end of his spectrum and chess at the “pure skill” end.[xii] In order to decide where on the continuum a certain activity belongs, Mauboussin suggests using the following question as a guide: “[A]sk whether you can lose on purpose. In games of skill, it’s clear that you can lose intentionally, but when playing roulette or the lottery you can’t lose on purpose.” Lawyers acting to legalize online poker in the United States even used this test in support of their legal arguments.[xiii]

Even if it is true that chance is a factor, a person’s reaction to a chance event or encounter is certainly of greater significance. Winning the lottery is one example of unexpected luck. However, people who win major prizes on lotteries often burn through their winnings in just a few years. In contrast, there are self-made millionaires and billionaires who have lost everything and, just a few years later, have been able to rebuild their fortunes.

Inheriting a large fortune is another example of a fortunate coincidence in which the beneficiary plays no part. But there are plenty of examples of heirs who lost their fortunes within two or three generations. Robert Arnott, William Bernstein, and Lillian Wu demonstrated in 2015 that the majority of super-rich heirs deplete their fortunes very quickly. They ask, “[W]here are the current hyper-wealthy descendants of past entrepreneurial dynasties—the Astors, Vanderbilts, Carnegies, Rockefellers, Mellons, and Gettys? … The originators of great wealth are one-in-a-million geniuses. … In contrast, the descendants of the hyper-wealthy rarely have that same one-in-a-million genius. … Typically, we find that descendants halve their inherited wealth—relative to the growth of per capita GDP—every 20 years or less. … Today, the massive fortunes of the 19th century are largely depleted and almost all of the fortunes generated just a half-century ago are also gone.”[xiv]

Nevertheless, there is no denying that luck and chance do actually play a role in success, although people are generally less concerned with luck than with the question of identifying the proven strategies for success. After all, what can one deduce from the realization that luck or chance plays a role? For one’s own actions, not very much. Which is why it is understandable that explanations of success tend to relate to factors upon which an individual has—at least—some influence.

LUCK AS AN UNCONSCIOUS DEFENCE AGAINST ENVY

In his book, Envy: A Theory of Social Behaviour, Helmut Schoeck developed the hypothesis that the terms luck, bad luck, chance, and coincidence played a central role in overcoming the problem of envy.[xv] Schoeck maintained that “man can come to terms with the evident inequality of the individual human lot, without succumbing to envy that is destructive for both himself and others, only if he can put the responsibility on some impersonal power—blind chance or fortune.”[xvi]

When successful people point to luck, this serves as an unconscious defence against envy. An athlete, student, or businessperson who has just enjoyed a particularly sweet (and for others envy-inducing) success, shrugs their shoulders and says, “So what? I was just lucky.” In doing so, and largely unconsciously, they are seeking to neutralize the envy that may be directed against them by pointing to a random, unpredictable, and uncontrollable power (or combination of powers) that is responsible for favourable or unfavourable outcomes.

When an extremely successful person declares, “I was just lucky,” their statement makes them far more likeable, human, and pleasant than if they boasted, for example, of their outstanding intellect or exceptional personality. On the other hand, there is something psychologically convenient about interpreting success as the result of skill and dismissing failure as the product of unfortunate, external circumstances. “My successes belong to me, my failures belong to others,” is a familiar explanation. Many studies show that “people who fail to achieve a goal, or are unable to master a task, tend to blame their failures—irrespective of the real reasons—on external causes, such as superior opponents, adverse circumstances or simple bad luck. With success, they do the exact opposite. [Success] is viewed primarily as the result of their own skills and abilities, and hardly ever as the result of a weak opponent or advantageous circumstances.”[xvii]

In the case of extremely successful individuals there is, however—as demonstrated by the interviewees in the Csikszentmihalyi study—often clear evidence of the opposite pattern. Extremely successful individuals credit their success to a great deal of luck, or at least postulate that this may be the case. There is perhaps a degree of coquetry at play here. The unconscious envy defence mentioned by Schoeck could definitely be a key factor, although there is certainly a third reason why extremely successful people so often cite luck or coincidence as factors in their success.

USING LUCK AND COINCIDENCE TO EXPLAIN SUCCESS

When we are unable to explain a successful outcome, we all too often jump to the conclusion that luck must have been the root cause. Mauboussin is among those authors who have strongly emphasized the role of luck. In support of his hypothesis, he introduces the economist Sherwin Rosen’s analysis from “The Economics of Superstars.”[xviii] “[Rosen] observed that a few superstars—‘performers of first rank’—earn incomes that are vastly larger than performers with only modestly less ability. While fans may prefer the superstars to lesser performers, [Rosen] argued that the difference in skill is too modest to explain the sizable gap in pay.”[xix]

This is a prime example of the tendency exhibited by many authors to over-hastily conclude that luck or chance have played a role, while failing to consider other explanations. Mauboussin’s definition of luck involves a subtraction or residual method: “In this sense, luck is a residual: it’s what is left over after you’ve subtracted skill from an outcome.”[xx] Mauboussin argues, for example, that even if superstars have a level of talent similar to the average musician, superstars still earn so much more that the difference cannot be explained on the basis of their musical skills alone. “There are a variety of ways to assess skill or quality,” he says. “For example, you might evaluate a song according to its rhythm, tonality, lyrical content, vocal quality, and instrumentation. Different people may have different lists or may weight those qualities in different ways. But no matter how we assess someone’s skill, luck will also help to shape our opinion through social influence. So, luck is not only behind the inequality of outcomes, it determines what we perceive to be a skill.”[xxi]

Here and elsewhere, the fallacy of the subtraction method, whereby luck is the residual once skills have been subtracted from outcomes, is a direct consequence of defining the term skill too narrowly. The mistake is to assume that a superstar’s higher earnings can only be the result of their musical skills, and, if it is not possible to categorize or quantify those skills, luck is the only remaining explanation.

This, however, is patently not the case, as can be demonstrated by the example of Madonna, who, at one time, was the highest paid singer in the world. When asked whether Madonna was gifted, her manager, the woman who paved the way for Madonna’s first musical successes, answered, “She had just enough skill to write a song or play guitar. … But more than anything, it was her personality and that she was a great performer.”[xxii] When Madonna won her starring role in the film Evita, she had to first undergo three months of professional voice coaching even though, at the time, she was already one of the most famous and successful singers in the world.[xxiii] Her success and high earnings were not a product of an extra-special musical talent, nor were they the result of luck or coincidence; they were the product of an exceptional ability to position and promote herself.

Whether one speaks of tacit knowledge, implicit knowledge, or atheoretical knowledge, it is in any case clear that we often know more than we ourselves are aware of or can explicitly explain. The Austrian-British economist and philosopher Friedrich Hayek pointed out that there are a number of things we can do very well without knowing how: “It is characteristic of these skills that we are usually not able to state explicitly (discursively) the manner of acting which is involved.”[xxiv]

As has been shown, successful people are often unable to explain in explicit terms why they are successful. Can a successful author explain exactly how he writes? Can a successful musician explain exactly how she is able to achieve greater success than other musicians? Because their actions are often the product of implicit learning and proceed intuitively, the path to success is difficult to explain. Perhaps these people have never thought very carefully about it, or they lack the ability to reflect on such topics at a more abstract or even scientific level. Even when they have done so, they often lack the distance and basis for comparison necessary to provide appropriate explanations.

When the reasons for a person’s current or past successes remain hidden to them, it is no surprise that they turn to explanations such as luck or chance. This explanation is shorthand for a combination of talents, skills, and abilities—tacit knowledge—that defy a cursory examination. Unable to explicitly communicate tacit knowledge, a person may also offer luck as an explanation in an unconscious attempt to avoid embarrassment or provoke envy. The explanation contains a sliver of truth—happenstance does offer opportunities to us all—but for happenstance, luck, or coincidence to truly contribute to great success, they must meet an individual with the requisite tacit knowledge, one who is able to recognize the opportunity, seize it, and use it for advantage.


Sources

[i] Mihaly Csikszentmihalyi, Creativity: The Psychology of Discovery and Invention (New York, NY: Harper Collins, 2013).

[ii] Csikszentmihalyi, 46.

[iii] Csikszentmihalyi, 46.

[iv] Malcolm Gladwell, Outliers: The Story of Success (New York, NY: Little, Brown, 2008).

[v] Gladwell, 23.

[vi] Quoted in Arnd Hoffmann, Zufall und Kontingenz in der Geschichtstheorie (Frankfurt: Vittorio Klostermann, 2005), 56.

[vii] “Big 5 Personality Traits,” Psychology Today, https://www.psychologytoday.com/ca/basics/big-5-personality-traits; Ernest C. Tupes and Raymond E. Christal, “Recurrent Personality Factors Based on Trait Ratings” (technical report AD-TR-61-97, United States Air Force, Aeronautical Systems Division, 1961), https://apps.dtic.mil/dtic/tr/fulltext/u2/267778.pdf.

[viii] Sari Pekkala Kerr, William R. Kerr, and Tina Xu, “Personality Traits of Entrepreneurs: A Review of Recent Literature” (Harvard Business School, working paper 18-047, November 2017), https://www.hbs.edu/faculty/Publication%20Files/18-047_b0074a64-5428-479b-8c83-16f2a0e97eb6.pdf.

[ix] Heiko Ernst, “Glück haben: Wie sehr bestimmen Zufälle unser Leben?,” Psychologie Heute 4 (2012): 20.

[x] Ernst, 20.

[xi] Hoffmann, 30.

[xii] Michael J. Mauboussin, The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing (Boston, MA: Harvard Business Review Press, 2012).

[xiii] Mauboussin, 19.

[xiv] Robert Arnott, William Bernstein, and Lillian Wu, “The Myth of Dynastic Wealth: The Rich Get Poorer,” Cato Journal 35, no. 3 (2015): 448.

[xv] Helmut Schoeck, Envy: A Theory of Social Behaviour (New York, NY: Indianapolis Liberty Fund, 1987).

[xvi] Schoeck, 285.

[xvii] Louis Schützenhöfer, Vom Charme des Scheiterns: Krisen für einen Neustart nutzen (Vienna: Verlag Carl Ueberreuter, 2011), 38.

[xviii] Sherwin Rosen, “The Economics of Superstars,” Cultural Economics: The Arts, the Heritage, and the Media Industries, ed. Ruth Towse (Cheltenham, UK: Elgar, 1997).

[xix] Mauboussin, 123.

[xx] Mauboussin, 16.

[xxi] Mauboussin, 125.

[xxii] Quoted in Lucy O’Brien, Madonna: Like an Icon (London, UK: Transworld Publishers, 2007), 49.

[xxiii] Rainer Zitelmann, Dare to Be Different and Grow Rich: Secrets of Self-Made People (Mumbai: Indus Source Books, 2012), 79–84.

[xxiv] Friedrich Hayek, Studies in Philosophy, Politics and Economics (London, UK: Routledge & Kegan Paul, 1969), 43.

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