Yesterday’s Baseline Scenario (one of my favorite blogs) had an entry describing an academic paper which modeled how income gets distributed in a society and why income inequality is so strong in some economies. Based on the abstract of the paper, and on Baseline’s summary of the rest of the paper (yes, I am admitting that I did not read the whole paper), the model shows that a set of homogenous homes will diverge in wealth, with wealth accumulating over time in fewer and fewer households, based purely on exposure to “idiosyncratic investments” which have higher returns. And in this model, exposure to these investments is random: based on luck.
Clearly this paper is not the be all and end all of explanations. Equally clearly, the assumption of homogeneity does not match reality. What I want to point out here is the connection to Duncan Watt‘s work on the development of hit pop songs, which he shows is also based on luck. Please see my posts here and here regarding Watts.
It’s interesting that two different approaches to modeling two different things come to such similar conclusions: the distribution of success is essentially driven by luck, not skill. Again, these are models, not complete explanations. I, for one, would certainly like to think that my skill will lead to success. However, judging by my reader counts, that may not be the case. Regardless, I think it’s important for us all to remember the role that luck plays in much of what we do.