With A Little Bit Of Luck

by Stuart Shapiro

Last week, Nobel laureate, Daniel Kahneman wrote a fascinating article that has implications for the way we think about policy issues.  The central point is that we all overestimate our abilities and all underestimate the role of randomness and luck.  Kahneman focused on the ability to make money in the stock market and the overconfidence of those  experts who have a good year.

In general, however, you should not take assertive and confident people at their own evaluation unless you have independent reason to believe that they know what they are talking about. Unfortunately, this advice is difficult to follow: overconfident professionals sincerely believe they have expertise, act as experts and look like experts. You will have to struggle to remind yourself that they may be in the grip of an illusion.

All of us (and I’m sure I’m included) attribute our success to talent or to hard work.  And to be sure those are contributors (see, there I go!).  But luck plays a big factor too.  Bigger than most of us want to admit.  And if luck plays a role in success, it also plays a role in failure.  And that is a core reason that we have a responsibility as a society to help those less fortunate than us.

By: Stuart Shapiro

Stuart is a professor and the Director of the Public Policy
program at the Bloustein School of Planning and Public Policy at Rutgers
University. He teaches economics and cost-benefit analysis and studies
regulation in the United States at both the federal and state levels.
Prior to coming to Rutgers, Stuart worked for five years at the Office
of Management and Budget in Washington under Presidents Clinton and
George W. Bush.