Wednesday, May 20, 2009
Here's my slightly extended take on the question of the relative importance of individual choices versus exogenous factors in determining success (as defined by high incomes).
I think that, with a few exceptions, certain individual choices are necessary for achieving certain levels of success. That is, I believe that achieving and maintaining success requires alot of the stuff that people always recommend -- e.g., willingness to work, investments in human and social capital, etc.
That said. Making the "necessary" choices is not sufficient to ensure the equal degrees of success. Similar people making identical (or nearly identical) choices (and thus meeting the necessary conditions) can still experience significantly different outcomes for a variety of reasons. For instance, two people making similar choices could end up working at similar jobs at different firms, but one firm could collapse while the other thrives. Alternatively, the market return (e.g., the wages offered) for choosing to cultivate certain skills can vary widely across time or space (e.g., individuals with basketball skills make substantially more money today than they did 40 years ago).
Even if making the same chioces generated highly similar outcomes, it is unclear to me that we should say, "Joe's success reflects Joe's choices." That may be true in a nominal sense, but Joe's choices cannot be entirely attributed to Joe. Not everyone has the same set of choices available, nor do they make their choices facing similar incentives. The choices available to individuals are shaped by their environment -- country, community, family, etc. As such, for some people in some families or places certain key choices are not even available (e.g., girls not allowed to go school in Afganistan, small children have no control over the school they attend or the number of educational resources available at home). Furthermore, even if individuals face identical choice sets (that is the same basic set of choices is available to everyone) the incentives to choose A over B are shaped by factors exogenous to the individual. That is, the percieved and actual benefits and costs associated with a decision are not identical. Parents, peers, communities, governments, ... affect these benefits and costs. As such, again, the differences in choices and outcomes that are observed should not be attributed entirely to the individual.
Exactly how much variation in outcomes reflects exogenous factors versus individual choices is hard to say. We don't get to observe many parallel universes where everything else remains the same, but we observe you making different choices. However, it is worth noting that correlations between sibling earnings are very high (approximately 0.5*) and stronger in families with higher socio-economic status (where perhaps choice sets are larger and families exert more control over choices). So it is not unreasonable, in my opinion, to think that exogenous factors are relatively important.
* Here's an excerpt from the link to help you think about what a correlation of that magnitude implies:
If one compared the earnings or wages of two sets of randomly chosen individuals from the population, one would not expect to find any correlation between the groups. In contrast, one would probably expect to find some positive correlation if the comparison was between pairs of siblings. Specifically, the correlation between siblings in a particular outcome measures how much of the overall variance in that outcome is due to all of the factors that siblings share in common-namely the same family and the same community influences (e.g., peers, schools).1
In this Chicago Fed Letter, I discuss some new research in which I show that the sibling correlation in economic outcomes (e.g., annual earnings) is close to 0.5. This suggests that about half of earnings inequality in the U.S. can be explained by family and community influences during childhood. To provide some context, this is roughly the same magnitude as the sibling correlation in height, a characteristic that presumably has a large genetic component. Given the multitude of factors that are involved in determining one's earnings (e.g., schooling, skills, choice of industry/occupation), one might find such a high correlation very surprising. This finding also suggests that inequalities between families persist strongly from generation to generation and that the U.S. is a less mobile society than is commonly believed. I also find that the sibling correlation has risen in recent decades suggesting that the U.S. may have become less mobile.
Some people would never have met their future wife/husband if they had chose not to go to a certain party, others would have never gotten a job at firm X if they had decided to skip that wedding where they met a person that recommended them. These aren't the same type of choices that are typically associated with future career success, but they do play a big role.
In high school,I began working at a bank through an internship. Years later due to my high standing and likability the same manager that hired me, practically offered (gave) my brother a position. Which was lucky for him because I had to apply, make a resume, type a letter of intent, get letters of recommendation to even get the position. But, they were just waiting for him to say he wanted the job since he was related to me. I can see that working at the bank for my brother has improved his social skills and self confidence and he is no longer quiet and shy as he use to be. Plus, it has made him very independent. I know he looks up to me and he strives to make more than I. But I of course cannot let that happen :) We are constantly competing against each other and feeding off each other to do better. Even our youngest brother wants to dress nice at the age of 8. He was excited to receive a button up dress up shirt and tie since he see's his older brother wear them to work :)
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