How important is luck in monetary success? A lot more than a lot of successful people are willing to admit – even to themselves.
Is luck as important as hard work in becoming successful? No – but, in the end, yes.
These are important questions – we ponder them often – that economists rarely bother to study. Except for one of my favourite economists, Robert Frank, of Cornell University in upstate New York. His new book is Success and Luck: Good fortune and the myth of meritocracy.
The case for believing that success is due overwhelmingly to talent and hard work – something every successful person wants to believe – is simple. Leaving aside a few lottery winners and rich heirs, almost every materially successful person is someone with ability who's worked hard for what they've got.
But the weakness in that argument is equally apparent: the many talented and hard-working people who haven't amassed much wealth.
What separates the two groups is good fortune. Some talented and hard-working people have enjoyed the additional benefit of a lucky break or two, some haven't, or have suffered unmerited setbacks of one kind or another.
Some have had the good fortune simply to have avoided any misfortune. And, of course, there are talented, hardworking, lucky people who aren't all that outwardly successful because they haven't given material success a high priority. (Don't bother feeling sorry for them – they've probably enjoyed far more personal satisfaction than those who measure their worth in dollars.)
It's easy for us to forget how much our success is owed to good luck. Everyone living has been born into the world at its most prosperous point. Everyone born in Australia starts with an enormous advantage over most other people in the world, in terms of free schooling and healthcare, freedom to choose their own path and freedom from predation.
When we joke about the importance of choosing the right parents, we acknowledge the role of inheritance in influencing future success.
Even when our parents have no great wealth to pass on, a big part of intelligence is inherited and academic success is greatly influenced by whether your parents were readers and valued education.
I've long believed that the example set by parents produces hardworking children.
Frank has no desire to undervalue talent or discourage hard work. Of course they play a major part in success. Nor is he opposed to meritocracy, where jobs go to the most able candidate.
His point is just that, for success, talent and hard work are, as they say at university, "necessary but not sufficient". Those who "got there on merit" shouldn't forget the lucky breaks they've had.
"Chance events are more likely to be decisive in any competition as the number of contestants increases," Frank argues. That's because winning a competition with a large number of contestants requires that almost everything goes right.
This, in turn, means that even when luck counts for only a trivial part of overall performance, there's rarely a winner who wasn't also very lucky.
In the topical case of athletics, luck can come in the form of wind. It would be stupid to deny that anyone winning a world record in the 100 metres, the 100-metre hurdles, the long jump or the triple jump was both physically gifted and had done years of training.
But Frank notes that of the eight current world records (men's and women's) seven occurred in the presence of a tailwind and none with a headwind.
To show the importance of luck even when it's only a small factor, he uses a computer to conduct a numerical simulation.
Say there are 100,000 participants in a contest where luck counts for just 2 per cent of performance, with ability counting for 49 per cent and effort for 49 per cent. For each contestant, the computer draws a number at random separately for each of the three components of their total performance.
The computer repeated this game many times (just as repeated tossing of a coin brings the result closer to 50/50).
The average luck score of the winners was 90 out of 100. And 78 per cent of winners did not have the highest combined ability and effort scores.
But if luck plays such an important role in success, why do the successful so often want to deny it? Frank offers two explanations, one charitable and one not.
We downplay the role of luck so as to motivate ourselves to try hard. When I wish Year 12 economics students good luck in the exams, I sometimes add: "You know how to be lucky? Make your own. The harder you work, the better your luck."
But there's often another, less worthy reason for denying our debt to good fortune. We use it to sanctify our wealth and justify our reluctance to pay high rates of income tax.
I'm well off because I made the right choices, studied when I could have played, saved when I could have spent and worked damn hard. Those people in the outer suburbs are poor because they didn't work and sacrifice the way I did.
I earned all I've got and it's quite unfair to tax me extra to give handouts to people who're too lazy or undisciplined to do what I've done.
That's why it's so important for successful people to acknowledge their good fortune.