A bigger talent pool favors the lucky over the skilled.
Remote work creates a giant market for talent and more intensive competition for jobs. A bigger market and more intense competition diminish the importance of talent compared to luck.
Peter Thiel famously wrote that "competition is for losers". The enigmatic billionaire meant that entrepreneurs should avoid competition and, instead, seek opportunities to monopolize resources and solutions that others cannot access or deliver. But there’s a deeper meaning to Thiel’s maxim. More competition makes it more likely that losers will end up ahead.
How do you know if someone is "the best" at something? Often, people rise to the top of their field by surviving a series of competitions. This is most obvious in sports, but it is also true in a variety of professional fields. We intuitively assume that intense competition is more likely to produce victors worthy of the top prize.
Competition legitimizes the winners. A job candidate chosen after interviewing and testing 1000 candidates is considered more legitimate and assumed to be more qualified than someone who was hired without an elaborate and intense process.
But that's not how it works, according to two studies from researchers at Oxford and The University of Gothenburg. In Does the cream rise to the top?, Thomas Noe and Dawei Fang try to determine whether the winners of highly competitive, high-stakes contests are talented or merely lucky.
Through a series of statistical experiments, Noe and Fang find that "in a wide range of settings... talent cannot be identified by competition." In fact, increasing competition can sometimes favor luck rather than talent because of a subtle, differential-threshold effect." In other words, more competition often makes it less likely that the best woman or man will win. This is because increased competition increases the impact of luck and random events; it makes it more likely that less-qualified participants will end up on top. This is a purely statistical phenomenon, and the researchers provide a detailed breakdown of their methodology.
But large, high-stakes competition doesn't simply favor less-qualified candidates; it also changes their behavior. In a different study, Fang and Noe looked at what happens when competitors adjust their strategy based on the size of the competition and reward. They found that weaker/less-qualified contestants tend to take more risk when they participate in a competition they know they are less favored to win. This, in turn, reduces the odds that the best-qualified participant will win.
There's more to say about these studies and dynamics. My main interest in them relates to the impact of remote work. When companies can hire from anywhere, the most qualified candidates will have to stand out in a bigger-than-ever talent pool. The bigger the pool, the greater the role of luck in determining the distribution of income — and the more motivated less-qualified participants will be to stand out and try to get a piece of the pie.
Have a great weekend.