By Tyler Cowen / Bloomberg Opinion
“If you’re so smart, why aren’t you rich?”
That has long been a rejoinder from businesspeople to academics, economists in particular. It’s an excellent question; and it is becoming increasingly clear that it applies to businesspeople as well. The link between earned income and IQ, which is admittedly just one measure of intelligence, simply isn’t that strong.
The evidence is striking. One study of CEOs of large Swedish companies found that on average they ranked at the 83rd percentile of measured IQ (for CEOs of smaller companies, the rank was the 66th percentile). That’s above average, but it’s hardly a cluster at the top of the distribution. Many CEOs undoubtedly achieved their position through hard work, charisma, people skills and other abilities, not to mention luck.
In the broader distribution, the connection between IQ and income is also positive but underwhelming. One study concluded that moving from the 25th to the 75th percentile of IQ correlates with a 10 percent to 16 percent boost in earnings. That may feel significant when you get it, but it doesn’t push you into a whole new socioeconomic class.
You might think that IQ is a poor proxy for a more general notion of “smarts.” But IQ is the most refined and commonly used intelligence measure, and it does correlate with other possible measures of intelligence, such as standardized test scores.
One recent study, also based on Swedish data, showed two results of significance. First, much of the intelligence-earnings correlation weakens significantly and plateaus above salaries of 60,000 euros a year. Second, and perhaps more surprising, people in the top 1 percent of earners had lower IQs than the earners immediately beneath them.
Why that is the case, it’s hard to say. But one possibility is that the very smartest people prefer a more balanced life rather than working all the time. Or perhaps they prefer occupations with higher status and somewhat lower pay. Money isn’t the only thing you can enjoy. Maybe having a lot of it can make it harder to trust potential friends or spouses.
Luck is another possible reason for the partial disconnect between IQ and income, especially at the very highest levels of achievement. In most investments there is a risk-return trade-off: That is, if you wish to have a chance at superior returns, you must take some chances. Once risk and luck are brought into play, it is easy to see how two people of equal skill and intelligence can end up with very different outcomes.
Citing luck as a factor is not to minimize the achievements of businesspeople and investors. To even get into a position where “luck” can bring you an extra $5 billion requires remarkable skill. That said, between a person worth $1 billion and one worth $6 billion, the case for thinking the wealthier person is smarter is not very strong.
As you might expect, the results are not the same for every country. In Finnish data, income does not decline among those with the very highest IQ. Still, being in the 99th percentile for IQ only puts you into the 70th percentile for income, again looking at the averages. More generally, the Nordic countries tend to collect the most data on IQ, and there are fewer accurate results for other parts of the world.
One lesson of these studies is clear: If you are looking to hire the best people, don’t obsess over their smarts. This is a mistake frequently made, most of all by smart people seeking others like themselves.
And the biggest lesson is that what really matters is a person’s ability to synthesize his or her skills; not excellence in a single skill.
Consider a top athlete such as LeBron James. He has never been the fastest man in the NBA, nor the best shooter, defender or rebounder. But he has an extreme synthetic intelligence that has made him possibly the greatest player in league history; and, not incidentally, a great team leader.
LeBron James is exceptional, of course. But you can learn from his example. When thinking about your own future, don’t be overly concerned — neither too upset nor too self-satisfied — about those SAT scores. Instead, try to figure out how to get all your talents working in tandem.
Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. He is co-author of “Talent: How to Identify Energizers, Creatives, and Winners Around the World.”
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