avatarKoen Smets

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(Featured image: Jacqui Brown/Flickr CC BY SA 2.0)

I should be so lucky

How can we estimate the importance of the role of luck on individual success?

Andrew Carnegie was an exceptionally lucky man. The fortune he amassed, adjusted for inflation, amounted to about $310 billion, give or take a few billions, putting him firmly in the top-5 of all time richest individuals. To accumulate such wealth in a lifetime is simply impossible through sheer hard work. He certainly did not start life in any sort of material wealth, born in a poor family in a Scottish industrial town, and growing up in a weaver’s cottage with one room serving as living, dining and sleeping quarters.

His biography on Wikipedia lists a sequence of events that all likely played a role in how his life panned out. Young Andrew was able to attend school — a school gifted to the town by a philanthropist. His uncle George Lauder was not just a significant intellectual influence on him, but also lent his parents the money with which they were to emigrate to America when he was twelve. Moving to America spelled the end of his formal education, and Andrew went to work changing spools in a cotton mill, when he caught the eye of, and was hired by John Hay, another Scottish émigré who owned of a factory producing spools for the cotton industry. A year later, he got a job as a messenger boy at the Ohio Telegraph Company, and within a year was promoted to telegraph operator. Meanwhile he had also been furthering his education by taking advantage of the offer of Colonel James Anderson, a wealthy businessman who, every Saturday evening, opened up his considerable library to working boys. In 1853, aged just 18, he was offered a position at the Pennsylvania Railroad, and Carnegie decided this offered better prospects than the telegraph sector. Within six years he made it to divisional superintendent. That was when he began to invest in industries that supplied the fast-growing railway network (iron and construction), as well as in two budding sleeping car companies. After the civil war he left the railway industry, concentrating on steel production (with the railways still a key customer, as well as a supplier of transportation for his products). Thanks to innovations he introduced, both technically (cheaper and more efficient mass production) and structurally (vertical integration), by the late 1880s, Carnegie steel was the largest producer of pig iron, steel rails and coke in the world.

O, lucky man! (image via Wikimedia)

These are just some of the waypoints described in Carnegie’s Wikipedia bio — his own autobiography contains many more events and situations which materially affected the course of his life. He got the job at the telegraph office through a chance remark over a game of draughts between the manager and his uncle Thomas Hogan. Working there, he much impressed a key customer, who turned out to be Thomas Scott, one of the superintendents of the Pennsylvania Railroad (who would later also encourage him to make his first investment). One day, he lost the payroll package (and was lucky to find it again). Another time, when an accident required swift action to sort out the chaos and his boss absent, he decided to take charge, impersonating his supervisor to give the orders that got the trains moving again.

Two biases — or rather, three

So all these events were in some way implicated in his progression, contributing a little, or a lot, to his business achievements. But as we track Carnegie’s remarkable life, two cognitive biases might shape how we perceive and interpret these events.

One perspective on his life is that this rags-to-riches story illustrates how, even from the humblest of the beginnings, it is possible to become a great success — that it is not just possible, but that it is within reach for anyone. This is known as survivorship bias: we seek to draw conclusions from those who succeeded, relating their salient characteristics to their very success. Airport and railway station shops tend to carry the kind of books that document successful people’s life choices and habits (from the subjects they took at school and their time at the cub scouts or brownies to their summer jobs and side hustles as a student and on to their present sleeping habits, their diet, and their exercise regime), implying that these made a material contribution to the successful outcome.

The other is our tendency to believe that the outcome was easy to predict based on earlier observations. This is hindsight bias. It seems almost natural, for example, that Carnegie’s job as a telegraph operator with the railway company was going to lead to his investment in steel production, given the explosive growth of this industry. Of course, at the time, that was not quite as predictable as it looks with the benefit of hindsight.

Or is it really just a matter of luck?

There is, in fact, a third bias that we exhibit when tracking exceptionally successful people. Even those who acknowledge that Andrew Carnegie worked hard and made considerable efforts to better himself are likely to ascribe his extraordinary success ultimately largely to good fortune. After all, as alluded to in the opening paragraph, wealth of that magnitude cannot possibly be accumulated be hard work alone. There are countless people who, at the time, worked — and right now, work — at least as hard as Carnegie did, without ending up among the top-5 richest people ever.

If — for the sake of argument — a million poor people all work very hard indeed, and only one becomes a multibillionaire, hard work is unlikely to be the determining factor. So it must have been luck that favoured Carnegie, the 1 in a million lucky dude, and passed the 999,999 other poor buggers by.

But looking at his biography, it is not so straightforward to pinpoint events that clearly, directly and manifestly altered his luck. In particular, most of these occurrences were in themselves not especially unlikely. Many were nothing like how we tend to picture luck — winning the lottery, discovering a hoard of gold coins, or inheriting a vast sum. They were mostly opportunities that he grasped, one way or another, for instance making use of Colonel Anderson’s vast library, or switching from the cotton to the telegraph industry, and on to the railway. He could easily have taken a different route at every juncture in his life.

If we ascribe Carnegie’s success to exceedingly rare good fortune, we would need to argue that some very improbable occurrence happened. If none of the opportunities on his way had arisen, he would almost certainly not have ended up where he did. That is definitely a matter of luck. But looking at the events that do mark his life, none seem particularly improbable. Many people much like him will have encountered similar choices along the way. Some of them may have failed to see them, or were unaware of their potential. Others may have made different choices, for whatever reason. At any point Carnegie could have made different choices too, but he made the decisions he made.

So, we should be careful in how we evaluate the role of luck in success. Was Coleman Cox on the money when he aphorized, “ I am a great believer in luck. The harder I work, the more of it I seem to have “?

I prefer the way my friend the former poker player and author Annie Duke captures it: “There are only two things that determine the way your life turns out. Luck and the quality of your decisions. That’s it.”

Originally published at http://koenfucius.wordpress.com on October 27, 2023.

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Behavioral Economics
Psychology
Decision Making
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