Every day, we hear stories of successful entrepreneurs and investment gurus, most of whom came from nothing. Yet, they made something of themselves with nothing but spit, grit, and a lot of duct tape, and they never relied on luck for their financial success.
How true are these stories? Did these wild success stories really come down to ability and hard work? Or did lady luck smile on them from time to time?
Why Do We Need to Appreciate Luck’s Role in Success?
We all want to succeed in life. We also want to believe that we have earned our success. We need to see our good fortunes as a direct result of all the sleepless nights in the office, all the family time willingly sacrificed, and all the money invested in the pursuit of a comfortable future.
So what if we were a bit lucky along the way?
It’s not how lucky we were, but what we did with our luck that brought us to where we are today. And, if someone were given our same luck, they wouldn’t have made as much of it as we have.
So, again, I ask you: does it matter how lucky we were along our way to success?
The simple answer is “It matters”.
Research has repeatedly demonstrated that people who recognize the role of lunch in their success are more likely to donate to charity and more likely to recognize the importance of the common good than people who think they did it all themselves.
Our Perception of Luck Affects Us
Yuezhou Hou, a former research assistant at Harvard, conducted an experiment that demonstrated how gratitude made us more generous. She offered participants a cash reward to complete a survey discussing a recent fortunate event.
Hou split her participants into three groups:
- The first group was asked to highlight the main factors that were out of their control and were responsible for the positive thing they had experienced.
- The second group discussed their personal qualities and actions that led to happy outcomes.
- The third group, the control group, explained the reasons behind the happy event without detailing whether these reasons needed to be within or outside of their control.
Once the subjects finished the survey, Hou gave them the reward but asked them whether they wanted to give away any of it to charity.
Those who were asked to think of forces outside of their control gave away over 25% more to charity than the group that assigned all the credit to themselves. The control group fell smack dab in the middle of the two groups.
Other researchers have found similar results. David DeSteno, a professor of psychology at Northeastern University, found that gratitude affects how good we are at cooperating with others.
How Much of Financial Success Boils Down to Luck
Figuring out how much luck plays into success is not easy. And, for every argument in favor of luck, someone will conjure up an argument in favor of talent and hard work.
So, to tackle this question, let’s go where all hard questions are tackled: the academic lab.
Quantifying the Role of Luck
In Italy, two physicists and an economist came together to answer a difficult question: How big of a role does luck play in success?
The physicists, Alessandro Pluchino and Andrea Raspisadra, along with the economist, Alessio Biondo, published a paper in 2018 entitled “Talent vs Luck: the role of randomness in success and failure.”
How did these researchers try to answer their research question?
They decided to run a computer simulation. They defined an agent as an individual with a certain level of talent, defining talent as the ability to make the most out of an opportunity. Then they placed 1000 agents in a sandbox, giving each agent their own equally distributed degree of talent.
After that, they gave each agent 10 “units,” where a “unit” was a way to measure each agent’s success. At the end of the simulation, the agents with the most accrued “units” would be the most successful ones.
Finally, they made two additional assumptions:
- Each agent would work for forty years, which is around the same time span we all spend during our careers from age 20 to 60.
- Each agent would either have a lucky or unlucky event happen to them every six months. If an agent experienced an unlucky event, they would lose half of the units they had at the time. Alternatively, when an agent had a favorable event, they would be able to increase their units in proportion to the amount of talent assigned to them.
With everything set, the researchers ran the simulation.
Here are their results:
- Talent was normally distributed, but success was not. The top 20 agents controlled 44% of the total units, and around 50% of the agents finished the simulation with 10 units or less.
- Agents with more talent than their peers had a higher chance of ending the simulation successfully. This should come as no surprise, as their talent meant that they got the most from every lucky event that happened to them.
- Nevertheless, the most successful agents were not the most talented ones. As a matter of fact, an agent with average talent but above-average luck outperformed an agent with extreme talent but poor luck.
- As a result of all of this, the best-performing agents were the ones who had the best luck while being just a tad above average when it came to talent.
Agents who experienced a series of fortunate events outperformed agents who ran into several unlucky events, even when the unlucky agent was more talented than the lucky one.
The researchers put it best when they said,
Even a great talent becomes useless against the fury of misfortune.
But what if the two agents were playing on different boards? We’ve been assuming that all the agents were operating within the same economy, and, by pure chance, some of them were having good events while others were having bad ones.
If one agent was born in the United States, and the other was living in Zimbabwe – or if some agents started the simulation with far greater access to education, capital, and connections – then the rules would be different for them. Each one would be operating on a different board.
When Agents Play on Different Boards
The Italian researchers also tried to answer the question of what would the end-result look like if agents had different opportunities due to their environments.
They placed some agents in a rich environment, where positive opportunities were plentiful, and simulated those. They placed other agents in impoverished environments, where positive events were few and far between and also simulated those.
Here are their main results:
- In the rich environment, two things happened. Several agents with average to high talent levels were able to achieve above-average success. Some of the average to high-talent agents achieved very high degrees of success.
- The poor environment agents were not so lucky. In aggregate, the agents in this environment saw little to no success. Only around 18 of them ended up with more “units” than what they had started with.
The above graph shows the talent/success distribution for a prosperous environment. The lower graph shows the talent/success distribution for the less fortunate environment. Notice how the success axis in both graphs displays different scales. That’s how big the disparity is!
Both luck and environment – what we might call privilege – had dramatic impacts on outcomes.
Factors That Help Set the Board
We just saw how starting the game with a fortunate advantage can have a huge impact on the final result. But even something as simple as your name can affect your future prospects.
- Your surname can have a direct impact on your academic success and your chances of receiving tenure.
- If your name is easy to pronounce, people are more likely to like you compared to individuals with names that are hard to pronounce.
- Women pursuing legal careers have a better chance of being successful if they have names that sound masculine.
That’s just your name!
Imagine what other more formidable elements affect your life that you have no control over whatsoever:
- Your ethnicity
- Your height
- Your looks
- Your level of intelligence
- Your family’s financial standing
- Your health
And, the list goes on…
So, if luck plays such a huge role in our financial success, why do we have such a hard time seeing it?
Why We Don’t See Luck In Our Lives
We have a hard time recognizing the role of luck in our success because, aside from the need to placate our egos, there are several cognitive biases impeding us:
Hindsight bias is our tendency to believe that events in the past were predictable, regardless of how random they actually were.
Imagine watching a horse race. You decide to place $10 on horse number 4. But, as the race unfolds, you realize, to your horror, that horse number 6, dubbed Lucky Strike, will win the whole thing by a landslide.
The minute Lucky Strike crosses the finish line, you start kicking yourself. Of course, he was going to win the race. The jockey was well rested the day before, and the horse had won its last race. What on earth were you thinking placing your money on horse number 4?
That is hindsight bias in action, and we do it all the time.
Successful people are guilty of it also. They can look back at the events that led to their success and believe that these events were both predictable and inevitable.
Closer inspection would tell us that several of these events boil down to pure luck.
Many of our cognitive biases are a result of us taking mental shortcuts, and survivorship bias is no exception. We tend to judge an entire group by assessing only a small handful of members of the group. The problem arises when these members are the survivors of the group, making them the most prominent but also the most misleading.
To see survivorship bias in action, think about what you know it takes to succeed as an entrepreneur. You are probably thinking of adjectives like resilient, hard-working, and visionary. And, these adjectives make perfect sense as each shining example of a successful entrepreneur embodies these characteristics.
However, can you tell me how many entrepreneurs were resilient, hard-working, and visionary, yet they failed nonetheless? We generally can’t, because we don’t know.
Less than 30% of newly started businesses will live long enough to turn a decade old. Tech startups have an even higher failure rate.
Nobody ever talks about those who tried and failed. Nobody wants to hear their stories, and nobody wants to give them credit for being industrious.
We just focus on the successes, building up this narrative that the entrepreneurs who succeeded always had it coming and that luck had nothing to do with it.
By now, though, you should realize that one of the main differences between the haves and the have-nots is sheer dumb luck.
In his excellent book “The Psychology of Money,” Morgan Housel reflects on some of the misfortunes faced by entrepreneurs his company invested in:
- One startup had to deal with water pipes breaking, which flooded and ruined the company’s offices.
- Another startup had to deal with three break-ins in their office.
- A startup was forced to shut down its store because an unhappy customer reported another customer to the health department for having the gall to bring their dog into the store.
- A CEO had to grapple with his email being spoofed while he was fighting to raise funds for his startup.
- One founder suffered a mental breakdown.
Now, any of these misfortunes is enough to bring a fledgling startup with limited resources to its knees. But, if a startup were unlucky enough to be hit with three or four of these types of misfortunes, how can they be reasonably expected to survive, let alone thrive?
It’s like the Italian researchers said, “Even a great talent becomes useless against the fury of misfortune.”
As if all of this wasn’t enough, self-attribution bias also scrambles our vision, making it hard to see the part luck plays in our stories.
Simply put, self-attribution bias says that when we succeed, we believe that our success was due to our character, our vision, and our intelligence. But, when we fail, we believe that our failure is due to things that were out of our control.
And, this bias doesn’t only affect us in hindsight. While we are in the middle of an event, it is easier for us to spot the forces impeding us than it is to notice the ones helping us.
To demonstrate this last point, I would like to borrow a metaphor from Thomas Gilovich, a psychology professor at Cornell:
When you’re running or bicycling into the wind, you’re very aware of it. You just can’t wait till the course turns around and you’ve got the wind at your back. When that happens, you feel great. But then you forget about it very quickly—you’re just not aware of the wind at your back. And that’s just a fundamental feature of how our minds, and how the world, works. We’re just going to be more aware of those barriers than of the things that boost us along.
So, not only are the most successful of us usually the luckiest, but they are also most likely to be completely blind to how good their fortunes have been so far.
How to Handle Luck
Armed with the above knowledge, you can do several things to be on better terms with luck moving forward:
One of my favorite takeaways from all of this is that luck presents you with fortunate opportunities. Nevertheless, it will always be up to you to wring those opportunities for everything they’re worth. This is why Seneca’s words ring true to this day:
Luck is what happens when preparation meets opportunity.
So, always be prepared, and take a positive attitude toward luck. Even though luck plays a large role, you still have a say in whether you take advantage of your luck or not.
When luck knocks on your door, it won’t always look the way you expect it to. Sometimes, you might be so fixated on a certain outcome that you fail to notice that another possibility was staring you right in the face all along.
Don’t get married to one outcome. Instead, always be on the lookout for opportunities in different shapes and guises, spotting the ones that others would miss.
Grow Your Network
One of the greatest sources of opportunities is the network of friends and relationships we build through life. The more people you know, the more likely you are to boost the number of opportunities that come your way.
Don’t Be Too Quick to Judge Others
When someone succeeds, don’t be too quick to celebrate their genius. When someone fails, don’t be too harsh on them.
A lot of success and failure in life boils down to factors out of our control, and sometimes second best is better than first place but unluckier.
After all, as research has shown us, achieving above-average success requires skill, but achieving extraordinary success usually requires luck as well.
Always be Grateful
An attitude of gratitude makes you more charitable and cooperative. It also can positively impact your health. According to studies, when you feel grateful, you will sleep better, your mood will improve, and your immunity will be stronger.
Gratitude won’t cost you a thing, so you have no excuse to avoid spending this abundant currency today.
Putting It All Together
We are inclined to deny luck’s role in our lives, but the facts are unavoidable: Luck has a huge say in who gets to the top and who doesn’t. While talent is necessary to get the most out of the opportunities presented to us, a series of unfortunate events is enough to ruin the best of us.
So, accept the role of luck in your life, be grateful for how fortunate you’ve been so far, and be prepared the next time a visitor comes knocking on your door. You never know what package they might have in store for you.
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