Luck vs. Talent vs. Workaholism
Alex Tabarrok reads my:
Brad DeLong writes:
...the lucky or talented or workaholic today can, thanks to revolutions in computer and communications technology, leverage their symbolic-analyst skills over a much larger base of routine manufacturing, marketing, and distribution workers than they could have a generation ago. In this model, we have become much more of a "winner take all" economy than we used to be. Much more income is distributed in the form of winner-take-all tournaments than used to be the case. My first reaction is that this is possible, but unproven. My second reaction depends on whether victory in the winner-take-all tournaments is due to luck, talent, or industriousness.
And comments:
Marginal Revolution: Talent and Reward: I would add this, it's going to be very difficult to tell. In a winner take all economy where talents are leveraged over a much larger base, small differences in talent are worth much more. A 1% improvement in a firm with revenues of 1 million is worth a lot less than a 1% improvement in a firm with revenues of 1 billion. Even more, if 1% greater talent is what separates Amazon from SuperBookDeals then the rewards to the founder of the former will be higher than that of the latter by much more than 1%...
To which I riposte that there is some evidence that luck plays a huge role:
Leonard Mlodinow: With each passing year the unpredictability of film revenue is supported by more and more academic research. That's not to say that a jittery homemade horror video could just as easily become a hit as, say, "Exorcist: The Beginning," which cost an estimated $80 million, according to Box Office Mojo, the source for all estimated budget and revenue figures in this story. Well, actually, that is what happened with "The Blair Witch Project" (1999), which cost the filmmakers a mere $60,000 but brought in $140 million%u2014-more than three times the business of "Exorcist." (Revenue numbers reflect only domestic receipts.)...
When Viacom Chairman Sumner Redstone bought Paramount Pictures in 1993, he inherited Sherry Lansing as studio chief.... [U]nder Lansing, Paramount won best picture awards for "Forrest Gump," "Braveheart" and "Titanic" and posted its two highest-grossing years ever. So successful was Lansing that she became, simply, "Sherry"--as if she were the only Sherry in town. But Lansing's reputation soon plunged.... [Why? T]he short answer... 11.4%, 10.6%, 11.3%, 7.4%, 7.1%, 6.7%.... [T]hose six numbers represent the market share of Paramount's Motion Picture Group for the final six years of Lansing's tenure between 1999 and 2004.... How could a sure-fire genius lead a company to seven great years, then fail practically overnight?... Lansing had been praised for making Paramount one of Hollywood's best-run studios, with an ability to turn out $100 million hits from conventional stories. But when her fortune changed, the revisionists took over. Her penchant for making successful remakes and sequels became a drawback.... Even if the theories of Lansing's shortcomings were plausible, consider how abruptly her demise occurred. Did she become risk-averse and out-of-touch overnight?... Postdiction is less impressive than prediction. But as the final chapter of Lansing's career shows, postdiction is how Hollywood does business.
Academic research provides an alternate theory of Lansing's rise and fall: It was just plain luck.... [I]n Lansing's case there's already evidence that she was fired because of the industry's flawed reasoning rather than her own flawed decision-making.... Paramount's 2005 films (and even half of 2006's) already were in the pipeline when Lansing left the company.... With films such as "War of the Worlds" and "The Longest Yard," Paramount had its best summer since 1994 and saw its market share rebound to nearly 10%.... [H]ad Viacom had more patience, the headline might have read, "Banner year puts Paramount and Lansing's career back on track"...
