Billionaires and the Evolution of Overconfidence

[from: The Garden of Forking Paths]

To understand billionaires, you need to understand horizontal inequality, illusory control, self-selection bias, quantified self-worth, and the evolution of overconfidence.

What would you do if you suddenly had a billion dollars?

The way you answer that question will tell you something about how likely you are to become a billionaire in the first place.

For most of us—myself included—the answer to that question gets split into two parts: logistics and philanthropy. First, for logistics, you might consider: what would you change about your life once I never have to worry about money ever again? This is the “would you quit your job?” or “would you move somewhere else?” part of the question. Second, if you’re a decent person, you’d probably consider who you’d help and how you’d allocate a substantial portion of your obscene, newfound wealth to people who need support. To us, money is for something, it’s not a goal in itself.

That means we probably won’t become billionaires.

When billionaires first become billionaires, they have a different answer to the question of what they’d do if they reached a billion dollars: “I’d figure out how to make two billion.” This is a trait that pretty much every billionaire has….

I’ve spent much of my career studying powerful people, interviewing more than 500 leaders all over the world, from America to Zambia, Belarus to Thailand, Madagascar to Tunisia. As part of my research, I’ve met many billionaires. And the most important lesson I learned in those interactions was that these people were not normal. I don’t mean that in a nasty way (though often they deserved it). I mean it in a statistical way — they were abnormal outliers….

Now, consider other social systems such as power and wealth. If you want to become powerful, you usually have to want power. We have a word for that: “power-hungry,” and it’s not a compliment. It quite literally means someone who seeks power — and rarely do you get power without seeking it. The most powerful people in our societies are therefore those who, by self-selection bias, seek power — and then have managed to get power and stay in power.

But now, unlike the spelling bee, there’s a bit of conceptual leakage. What we want is someone who is good at wielding power for the benefit of us all. But what we’re actually selecting for in our political systems is someone who wants power, is good at getting it, and then never letting go. Our systems select for the wrong thing. It’s as though you were to hold a spelling bee but then choose then winners based on who is best at convincing you that they can spell, rather than who can actually spell.

The same is true for wealth. In an ideal world, the people most rewarded financially in our social systems would be those who generate the most shared wealth and prosperity, or those who innovate and help humanity the most; or those who are the wisest and most selfless and could therefore use their wealth for its maximal impact.

But that’s not what our modern economies select for at all. Many of the smartest people on the planet are not driven by money, so they’re not even in the running to become a billionaire — just as many of the people who would make the best politicians are those who least want political power. They’re not in the game, so they can’t win. Many theoretical physicists are geniuses; none of them are billionaires.

By contrast, few billionaires are geniuses, but all of them think they are…. when someone becomes a billionaire, it’s the ultimate validation of their overconfidence….

This leads to a dangerous delusion known as illusory control, in which a person mistakenly thinks they can shape outcomes to their liking even when they can’t. This occurs frequently when someone who has been successful in one domain chalks that success up purely to talent rather than to a more accurate assessment of their abilities and knowledge. They then assume that everything they touch will turn to gold and are surprised when it doesn’t….

The problem is worsened by a phenomenon known as horizontal inequality. We measure ourselves not against society as a whole, but relative to those closest to us. Billionaires often live near other billionaires and socialize with them (this is why yacht clubs exist), so their benchmarks shift. They compete with each other, so assessments of their wealth are transferred within the 0.000033 percent of the population, rather than relative to the 99.999967 percent of the population they’re above…. because of their obsession with horizontal inequality, a billion dollars is never enough for a billionaire. They just keep angling for that next billion, in a Quixotic quest to entrench their status and outcompete their peers….

Rather, these lessons are a call to action. The billionaire class is the visible manifestation of a broken system, which attracts and promotes the wrong kind of people into wealth and rewards them in a way that is very unlike a meritocratic spelling bee. The good news is that, like all systems, these systems can be changed, to create stronger overlap between who we hope to reward—those who help society and improve our world—and who we actually reward too often: greedy overconfident narcissists who can never get enough of their grotesque wealth.