The Illusion of Success and the Nature of Reward
Year: 2019
Type: preprint
Abstract: Many successful activities and outcomes benefit from strokes of luck. Moreover, humans are over-confident and tend to confuse luck for skill (Heads I win, it's skill; tails, I lose, it's chance). Where success derives in large part from luck, it follows that there is an outsized propensity towards rewarding luck rather than merit (skill and effort). This rewards a culture of gambling, while downplaying the importance of education, effort, qualitative process and persistence. This may also be one of the factors explaining excessive risk-taking in activities, such as finance, dominated by stochastic processes. To address this, we propose three different ways to classify reward-based success: (i) outcome based reward; (ii) risk-adjusted outcome based reward and (iii) prospective reward. With the goal of better matching merit and reward, we emphasize the need to navigate into the future using the framework of complex adaptive systems, decomposing any action into five steps: observe, decide, execute, challenge and explore. We present a review of several human endeavors analyzed through the lens of these measures and propose concrete solutions to restrain from rewarding luck while encouraging skill and effort by focusing on process. Applications and recommendations are suggested for finance, tax policy, politics and science.
Source: arXiv (Cornell University)
Authors: Didier Sornette, Peter Cauwels
Language: English
Subfield: General Decision Sciences
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2913438363