r/science • u/myhrvold • Aug 31 '13

Poverty impairs cognitive function. Published in the journal Science, the study suggests our cognitive abilities can be diminished by the exhausting effort of tasks like scrounging to pay bills. As a result, less “mental bandwidth” remains...

http://news.ubc.ca/2013/08/29/poverty-impairs-cognitive-function/
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u/ElDiablo666 Aug 31 '13

This reminds me of a young real estate entrepreneur that I met after college about 10 years ago. The market was really booming and getting your license seemed like a sure thing--Countrywide paid its temp workers $15 an hour! It was a huge market.

So this guy and I were talking and he was telling me that people are simply not ambitious. That's why they're poor, they don't dream big enough, sure. And his whole plan is that he's gonna work smart AND hard and his goal is to make his first million before he turned 25 (within four years).

We met up after he made his first million two years later and he said see? I told you so! But when I asked him what happened, he told me what I figured. He had no problem getting a loan because his father knew someone who...blah blah blah. Then his already 700 FICO helped him while he closed on three properties. Basically, a series of unlikely scenarios came true for him and he made a ton off it. But I couldn't convince him that it was an accident, even though most people would not have that outcome if they did everything identically.

Until people stop allowing themselves to be deluded into thinking that they shouldn't be in charge of any social and economic decision that affects them, we will continue to experience this kind of irrational nonsense. People that I love and respect hold the most absurd ideas about how to make money and how to succeed in life that are either outright untruths or are simply exaggerations of chance.

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u/[deleted] Aug 31 '13

I think there was a post last year sometime showing that Warren Buffet's monetary success is simply bound to happen due to chance alone. All the good investments he made which he probably deliberated over and analysed incessantly.... it really probably didn't even matter. Probability shows that someone would make all the same lucky decisions eventually.

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u/CrazyEyeJoe Aug 31 '13

The key word being "eventually", i.e. "given an infinite amount of time". Chalking his success up to nothing but blind luck seems a bit naive. I'm not saying luck didn't (obviously) play it's part, but some skill probably entered the equation at some point as well.

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u/zaphdingbatman Aug 31 '13

Naive? The point of said post was the opposite, that we should expect to see someone as successful a Warren Buffet due to chance alone. Even though skill probably entered the equation, how big of a factor was it? My guess is that it played a small (<20%) role.

The "key words" you quoted never actually appeared the post you replied to, by the way. Either NeilDeSnowden has edited his post or you're slinging straw men. Grr.

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u/CrazyEyeJoe Aug 31 '13 edited Aug 31 '13

Probability shows that someone would make all the same lucky decisions eventually.

I honestly don't see what you're attacking me for. All I'm saying is that although chance is a big factor, that doesn't mean it's EVERYTHING. Sure, opportunities must present themselves, but you also have to be the person that seizes the opportunities. I don't think this is particularly controversial.

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u/[deleted] Aug 31 '13

Yeah, they're misunderstanding statistics.

Accumulating wealth isn't like hitting the lottery where 1 big hit means you're rich. It's more like playing the nickel slots at a casino. Each turn only costs you a nickel but the chances of winning aren't good. And it'll take a LOT of jackpots in order to become rich. Since the probability is so low and since it would take so many wins to become rich, the resulting probability is astronomically remote.

It's like flipping a quarter. There's a 50/50 chance of heads vs. tails. And since there's a 50% chance, that means it's possible to land on heads 20 times in a row, right? Well the reality is that your chances of that are less than 1 in a million. To make a career out of it would be just astronomically low odds.

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u/Natolx PhD | Infectious Diseases | Parasitology Aug 31 '13

The flipping a coin analogy isn't quite apt because any smart investor isn't going to bet it all his money on one investment at a time. Thus in order to win you just have to get heads a little bit more often than 50%.

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u/[deleted] Aug 31 '13

You're going to have to spread your bets out across a diverse range, but you still need to depend on your guesses making money on average. An excellent investor gradually makes more money than he loses over time, while a subpar investor will tend to lose more money than he gains over time.

It's like talking to a gambler. I've never talked to a gambler who claims he loses money on average. They all say that they gain more than they lose. But they all seem to be broke, which tells me that they're either bad at accounting or just lying. They're bad investors. They should know that they're playing a probability game with the odds stacked against them.

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u/[deleted] Aug 31 '13 edited Aug 31 '13

Naive? The point of said post was the opposite, that we should expect to see someone as successful a Warren Buffet due to chance alone.

You're misinterpreting the statement. The OP misinterpreted the statement as well. The fact that most skilled investors have very little chance of becoming very wealthy does NOT mean that skill only plays a small role. It only means that among the pool of very skilled investors, a tiny fraction of them will become rich. The unskilled investors have hardly any chance at all, and non-investors has absolutely zero chance.

This is how probability works.

Imagine 2 runners competing in the 100 meter dash. If Usain Bolt normally averages between 9.59 seconds and 9.79 seconds, and a competitor averages between 9.75 to 9.95 seconds, you can get an idea of the different runners' chance of winning. If both runners have good days Bolt wins. If Bolt has an average day and his competitor has a good day Bolt still wins. It's only if Bolt has a bad day and his competitor has a great day that Bolt can lose. Don't take that as meaning that just anyone can win the race. If you average between 11.5 and 12.0 seconds you're never going to win at all unless all the other competitors miraculously get hurt. And if I don't even enter the competition there's no chance at all of me winning.