I recently had dinner with my friend and ex-colleague John (not his real name) who now works at a large tech company. During the course of our conversation John was compelled to tell me how well one of our other former colleagues Steve (also not his name) was doing:
Did you know that he is a multi-millionaire now? And he owns three homes on the peninsula!
For context, over five years ago Steve went to go work at the same large tech company that John now works at. While Steve got lots of equity when he joined (equity that has since appreciated considerably), John didn’t. He joined a few years too late.
After John finished gloating over Steve’s success, I waited a moment and then replied, “And?” John seemed a bit shocked by my response. “Isn’t that crazy?” he said. “Not really,” I continued, “Steve just got lucky.”
I understand why John felt a need to compare himself to Steve. They both were of similar ages, had gone to similar schools, and had worked similar jobs, yet one of them was wildly more successful than the other.
Humans are social animals that subconsciously evaluate each other in status hierarchies. Just like all other apes, we need to know where we stand relative to one another. However, because this isn’t easy to do in the modern world, we use things like money, fame, and looks as proxies for status.
Unfortunately, monetary success can be largely a result of pure, dumb luck. In this instance, I’m quite confident that Steve was lucky because, frankly, he wasn’t that good of an employee at our prior company. While I would place John in the top 5% of all people I have ever worked with, I would place Steve in the bottom third. Yet, one of them is a millionaire and the other isn’t.
Of course it is possible that Steve got better with time or that they just needed a different role, but I am skeptical. I am skeptical because even if he did get better, there is no way that he got 10x better than my friend John, yet he earned 10x the rewards!
This is why you have to consider how much luck influenced someone’s life before you compare yourself to them. Yes, I have heard that “you should never compare yourself to anyone else,” but that advice is hard to follow. As I alluded to before, we just can’t help ourselves from performing social comparisons. If we could, then companies like Instagram, Facebook, and Twitter wouldn’t exist in their current form.
The solution to this problem isn’t to “only compare yourself to your former self” either. While this seems like good advice initially, it can be mentally harmful in the long run. For example, consider someone who evaluates themselves based on their strength, beauty, or mental faculties. How will these people feel when these attributes naturally decline with age? Unless they find another way to evaluate themselves, it won’t be pretty.
This leaves you with a problem. If you can’t compare yourself to others and you can’t compare yourself to your former self, what should you do? You should compare yourself to where you would expect to be in the “average” state of the world.
For example, if we could re-run the universe 10,000 times while controlling for your genetics and general upbringing, in how many of these universes would you be better off than you are now? In how many would you be worse off? Have you had more than your fair share of luck? Or did you have to struggle more than you would expect?
In the scientific community the Greek letter delta is commonly used to denote change. The question you have to ask yourself is:
What’s your delta?
Is it positive or is it negative? A positive delta means that you are better off than you would expect in the “average” state of the world, while a negative delta implies that you are worse off. I ask this question because this is the only way I know of performing social comparisons while also trying to control for chance.
For example, if you were born into a farming community in India or China, it wouldn’t make sense to compare yourself to Bill Gates who was born to an upper middle class family in the wealthiest country on Earth. However, comparing yourself to others in your farming community would be useful for understanding your expected life outcome.
You have to control for these starting conditions because, as I have demonstrated before, your starting state has huge implications for where you end up later in life. Of course, controlling for initial conditions isn’t easy to do. It’s hard to imagine how else your life could have turned out, but this doesn’t mean you shouldn’t try.
For example, what if we could re-run Warren Buffett’s life 10,000 times? Would he be a billionaire in all of them? Absolutely not. However, Warren Buffett would be at least a multi-millionaire in many of these alternate realities. Growing up in twentieth century America with his IQ, personality, and family upbringing would almost guarantee it. The Warren Buffett we know got lucky, but that doesn’t take away from his genuine talent and efforts. As I like to think about it:
Almost all millionaires are hard-working, but every billionaire is lucky.
This is why using “delta” is a better evaluation tool than directly comparing yourself to other people. Because some of those other people are lottery winners, except, in their lottery, they never had to buy a ticket…
One Hand Out of Many
We all have a story we tell ourselves about ourselves. You have one. I have one. And this story is what we use to judge our successes and our failures. But it’s not the only story that could have been written, it’s just the one that was written. If your story has more blessings than hardships, consider lending a hand to someone who wasn’t as fortunate. The power of having a positive delta is being able to uplift those currently experiencing a negative delta.
And if you are one of those people who believes they have a negative delta, there is still time to change that. Allison Schrager explained this well in An Economist Walks Into a Brothel when she described how Phil Hellmuth, a famous poker player, deals with periods of bad luck:
Hellmuth practices what behavioralists call broad framing: He never feels pressured to play a hand or fold, even if he’s down, because he reminds himself it’s just one hand out of many.
Hellmuth understands that even when he is down, there is still time to improve things. That’s the beauty of life. Most of us get more days. Most of us get more chances to improve ourselves and the world around us. This is just one hand out of many. Thank you for reading!
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This is post 145. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
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