Success and luck have always been one of our topics of focus because it involves issues of randomness. In his research on “success and luck,” behavioral economist Robert Frank is particularly concerned about two points: there is a type of successful experience called “luck”; success may indeed require “luck.” From this, Frank summed up the three rules of luck: luck can be amplified; luck can be added up; the more intense the competition, the more important luck is. One of the central themes is that those seemingly small random events have an impact on our lives far beyond most people's imagination. By continuously accumulating, those seemingly small random events will generate cumulative advantages, causing the Matthew effect.
The luck factor becomes critical
Most successful people attribute success to their talents and efforts. In the dictionary of successful people, there is probably no word for luck. Denying the importance of luck may help people overcome the ubiquitous barriers to success, while emphasizing the importance of luck will make people notice that even the most unremitting efforts cannot guarantee future success. In this way, it may encourage some people to settle for the status quo. Believing that success depends only on talent and effort, it may be easier to put in all the efforts required to succeed. If so, this misconception may have a large market. Underestimating the importance of external forces in individual success stories can be costly.
Based on his experience working at Solomon Brothers, Michael Lewis published “Playing Cards for Liars” in 1989, depicting how a new wave of financial manipulation on Wall Street is changing the world. Lewis knows very well that there is actually a more realistic version on Wall Street, where the theme is luck. What he wants to explain is that success is often rationalized, and people don't like to hear that their success is described as good luck, so they don't want to acknowledge random events, that is, the role opportunity plays in their lives, thereby underestimating the effect of luck on their success. In reality, random events have a very important place.
Characteristics such as talent and hard work are indeed very important, but since competition for social awards is extremely intense, talent and hard work alone are not enough to ensure victory. Good luck is necessary in almost all situations. Most of the biggest winners in the market are extremely talented and extremely hardworking, yet many equally talented and hardworking people have never achieved significant results.
Random events are always important. In some ways, its importance has become more apparent in recent decades. One reason for this strengthening has been called a “winner-take-all” market by economists Philip Cook and Robert Frank. These markets often appear in areas where the most capable people can expand rapidly with the power of technology. Technology has created similar winner-take-all markets in other fields, including law, healthcare, sports, journalism, retail, manufacturing, and even academia. In these areas, new methods of production and communication widen the impact of opportunity events and widen the gap between winners and losers. The so-called winner-take-all means that until the end of the market competition, the winners get all or most of the market share, while the losers are often eliminated from the market and are unable to survive.
We might say that if you work 1% more than others and have 1% more talent than others, then you should earn 1% more, but when you want to turn these small differences in performance into tens of millions of times difference in earnings, the importance of opportunity is highlighted. In almost all cases, huge returns from a few winners have attracted a large number of “contestants” to enter the market. The more contestants there are, the luck factor becomes more critical.
While many of the contestants were close to the top in terms of talent and effort, some were bound to have better luck than others. Although the influence of luck on the “game” is very weak, some people with both talent and hard work did lose to competitors who had the same talent and effort but were slightly better in terms of luck. As we can see, the results of this particular game were simulated 1,000 times, and only a few winners were superior to others in terms of overall skill and effort.
The power of tiny random factors
Insignificant random events have a greater impact on the trajectory of life than most people realize. By continuously accumulating, those seemingly small random events will generate an accumulation advantage, causing the Matthew effect, thus expanding into a winner-take-all. The story of the Matthew effect comes from a verse in the Bible's “Matthew”: for everything must be added to him to make him rich; if he doesn't have it, even everything he has must be taken away. The term was first proposed by sociologist Robert Merton to describe a chain reaction caused by seemingly small things. Any individual, group, or region that succeeds and progresses in a certain area (such as money, fame, status, etc.) will generate a kind of cumulative advantage, and there will be more opportunities to achieve greater success and progress.
The findings of Duncan Watts, a sociologist and author of “Six Degrees of Separation,” suggest that many songs, books, or movies are hugely successful, largely due to the fact that the first reviewers happen to like them. Of course, high-quality works are more likely to receive positive reviews in the early stages, or even succeed when the initial reviews are very negative. However, subjective reviews of most works were mixed, and some were successful only because the first person to publicly express an opinion happened to be from the right half of the review distribution curve. In other words, the success of many works and authors is partly due to luck.
Random events can determine a person's career trajectory by influencing their professional choices. Bill Gates was born in a time and environment that enabled him to deliberately learn programming techniques. He was later asked how many young people his age had similar experiences before going to college. He said, “There can't be more than 50 in the world. I was able to approach software development when I was young and had excellent conditions that no one else had, all because of a series of unbelievably lucky events.” Without such deep knowledge of software programming, Bill Gates wouldn't be one of the richest people in the world. However, long-term hard work and extensive expertise do not fully explain its success. He's lucky in other important ways.
The luckiest part for Bill Gates is IBM's pessimistic expectations for PC sales. If IBM were to anticipate explosive growth that was about to occur, it would never allow Microsoft to retain ownership of MS-DOS. Microsoft is fortunate that the copyright fees charged for each operating system have become its biggest source of huge profits. If none of this series of low-probability events had happened, Microsoft wouldn't be where it is today. If Bill Gates had been born in 1945 instead of 1955, if his high school didn't have a computer terminal that could provide instant feedback, and if IBM had reached an agreement with a digital research company... Bill Gates would almost certainly never have had such great success as he is today.
Countless examples have proven the power of seemingly small random factors that can dramatically change the trajectory of life. It's often important to acknowledge what may seem trivial in reality, but that's not to say that a successful life isn't about talent and hard work. In the most competitive fields, those who do well are almost always very likely and very hardworking. As Charlie Munger said, the safest way to get what you want is to make yourself worthy of what you want. Perhaps the most useful advice for those who desire material success is to build deep expertise in something others value. Expertise comes not from luck, but from thousands of hours of hard work. But random events are also important. In many fields, success is almost impossible without excellent luck.
Luck is becoming more and more important
In a highly competitive market, small random events can easily upset the balance of the game, leading to huge wealth differences and success or failure in the process. The reason why luck is becoming more important is partly due to a marked increase in risk in competition, where the outcome of competition always depends to some extent on random events.
Highly competitive markets aren't just emerging today. Alfred Marshall, the great 19th-century English economist, once pointed out that advances in means of transportation have strengthened the best manufacturers in various industries. For example, piano manufacturing was a highly fragmented industry, as pianos were expensive to transport, and shipping costs would quickly become prohibitive unless the place of origin was very close to the customer. However, with the development of road and rail transportation and systems, transportation costs have dropped dramatically, and every production step has become more concentrated. Today, around the world, only a few of the best piano manufacturers have survived. When transportation costs drop dramatically, manufacturers that once played a monopoly role in a regional market will compete with each other to survive. In this competition, even a very small cost or quality advantage can be decisive.
Many environmental changes are similar to lower transport costs, such as lower tariff barriers and better communication technology. Perhaps more importantly than all of these, the value of a product is increasingly dependent on the idea behind the product. The idea is weightless, and there is no cost to transport. These changes help explain the widening income gap between apparently similar individuals, and the worsening of this income inequality since the late 1960s. There is no doubt that in industry after industry, the most powerful players have all used technology to expand their sphere of influence.
The network effect means that the value of a product increases as the number of consumers purchasing this product and its compatible products increases. Network effects sometimes allow a company's brief advantage to beat rival quality products. Network effects deserve special emphasis because they are probably the most important source of randomness in winner-take-all competitions. When we read bestsellers or watch popular movies, there are plenty of opportunities to connect. However, out of the countless books published and movies screened every year, only a few make the bestseller list.
Whether a book sells well depends on many factors, perhaps most importantly the quality of the content. But their authors can prove that many great books never make the bestseller list. A book with established content is more likely to sell well again if it is written by a best-selling author. The reason why a significant percentage of bestsellers are successful is because they were lucky enough to meet book reviewers who liked them in the beginning. Objectively speaking, many bestsellers aren't necessarily better than those that aren't. As a result, it is possible to create a “winner-take-all market.”
According to Frank's research, the winner-take-all market generally shows two remarkable characteristics: the first prominent characteristic is that rewards depend on considerable strength rather than absolute strength; the second notable characteristic is that rewards are often highly concentrated in the hands of a few top players. Part of the power of technology has played a complementary role while leading to a concentration of benefits. As Chris Anderson explained in his 2006 book “The Long Tail Theory,” digital technology makes small-scale production of music, books, movies, and many other products more economically viable. Both Anderson's long-tail theory and winner-take-all theory capture the important fact that technology has changed people's choices. However, preliminary evidence suggests that the winner-take-all theory is more closely linked to the trends we track and observe.
Recent trends in CEO pay show how small differences in competency can be transformed into huge income differences. A company with annual revenue of 10 billion US dollars narrowed its CEO candidates to two. One was only slightly superior to the other, but that was enough to cause the company's stock price to fluctuate by 3%. The small difference in endowment would translate into an additional $300 million in revenue, and even if the slightly better CEO was paid $100 million, it would still be a deal worth doing. In the 1980s, CEOs of large US companies were only paid 42 times that of ordinary workers; today, it is more than 400 times that of the latter. So, once again, we see that although seemingly small random events have little impact on absolute performance, their importance is increasing day by day. Clearly, increased competition has amplified the power of winners.
Random events are decisive
Although luck only plays an insignificant role in the game, the winner is almost always the luckiest of all players. If you want to beat the many contestants in the competition, you can't go wrong. This means that even if luck determines only a small part of the overall performance, the unlucky ones will definitely not be the big winners. The huge difference between the possibility of a strange thing happening to you now and the possibility of it happening to someone at some point makes us intuitively think it's highly impossible.
Most of one's life is spent in a dull moment, yet in fact, almost everyone who lives long enough will witness a series of incredible things, most of which are highly unlikely to happen at any particular moment. But when you put them together, they look like they're possible. Connect enough such events over a sufficiently long period of time, and those events that are unlikely to occur under any conditions will suddenly become inevitable. The probability of tossing a coin upward 20 times in a row is about 0.000,001, which means you will definitely encounter it once in a million attempts. Most of the events we experience in our lives are the result of a complex combination of events, so in a normal life where we have to experience millions of things, we are bound to encounter situations that seem extremely unlikely to happen.
In a competition, as the number of contestants increases, random events are likely to be decisive. In such competitions, the role of luck is similar to the effect wind has on some athletics events. In athletics, setting a world record is the highest level of sporting achievement. Without exception, these athletes are all inherently gifted and have the willpower to endure years of rigorous training. Even so, unpredictable opportunities play a significant role. To set a record, you have to be foolproof.
The inherent randomness of luck means that the most skilled players can't be luckier than everyone else. With a large number of contestants, there are bound to be many people close to the highest level, and at least some of them will be very lucky. So, even if luck only determines a small part of the results, the winners of major contests are rarely the best players, but usually the luckiest ones.
In a simulated experiment, the average luck score of the winners was 90.23, and 78.1% of the winners did not have the highest total value of talent and effort. In most cases, there are always a few people whose total talent and effort is worth more than the winner. If the importance of the random events shown by simulations challenges our intuition, it is at least partly because we feel right that grades depend more on ability and effort than on small random events. Reality clashes with intuition because in any given instance, even highly impossible things can become possible, as long as there is enough probability to allow them to happen.
If the outcome of the competition depends almost entirely on ability and effort, intuition tells us that those who are the most gifted and the hardest will almost inevitably have the upper hand. In reality, the winners in any highly competitive field are almost always highly gifted people who constantly inspire themselves. Competitions that decide the biggest financial winners always attract a large number of participants. Many of them are outstanding people, but in most cases, those who win in the end probably wouldn't have won the championship at all if it weren't for extraordinary luck.
The naturally selected human nervous system does not aim to be happy, but rather encourages behaviors that promote survival and reproduction. People who believe they are destined to win any game may suffer losses they could have avoided by participating in more games they should not have participated in. However, people who are highly inclined to attribute failure to unlucky people may not be able to accept all kinds of feedback necessary to improve future performance. Both of these tendencies are not conducive to population reproduction.
In a competitive environment, real expertise is often a necessary prerequisite for success. At this point, going with the flow becomes a bad strategy. To become an expert in almost any field, thousands of hours of hard training are a must. If you put too much emphasis on the importance of luck, you can easily find excuses to be lazy and hope for the favor of the god of destiny. However, believing that talent and hard work determine everything will make it easier for people to face difficult challenges. Under this premise, denying the importance of luck is a wise choice.
In any case, if you want to enjoy good luck for a long time and move from success to personal success, you need to properly understand luck. No one can be successful casually, because success requires luck, but luck is scarce. Enough wisdom and enough effort only determine the lower limit of success; the upper limit of success is determined by luck. Balancing these seemingly conflicting ideas is probably the biggest challenge we face. However, the test for first-class intelligence is whether you can hold two opposing views in your mind at the same time, and still have the ability to act normally.
When we always try to learn from our experiences in awe of the unknown without being arrogant; we are more tolerant and humble; when we know how to understand that our ignorance is not harmful to our face, we are clear and studious; when we learn to maintain a consistent objective attitude in a subjective world full of chaos and human defects, rather than clouds or butts determine our heads — so in a subjective world or objective truth where the vast majority of people are losers, we may be closer to success as a result.
Editor/Jeffrey