Extreme earners are not extremely smart
IMAGE: MARC KEUSCHNIGG, ASSOCIATE PROFESSOR AT THE INSTITUTE OF ANALYTICAL SOCIOLOGY AT LINKÖPING UNIVERSITY AND PROFESSOR OF SOCIOLOGY AT LEIPZIG UNIVERSITY. view more
CREDIT: VERENA KEUSCHNIGG
People with higher incomes also score higher on IQ-tests – up to a point. At high incomes the relationship plateaus and the top 1% score even slightly lower on the test than those whose incomes rank right below them. This suggests that one cannot infer high intelligence from high income, shows a new study from Linköping University published in the European Sociological Review.
The researchers combine wage data from Swedish population registers with scores from cognitive ability tests taken from military conscripts at age 18-19.
“This data trove permits us to test, for the first time, whether extremely high wages are indicative of extreme intelligence. To do so, we needed reliable income data that covers the entire wage spectrum. Survey data typically miss top incomes, but the registers offer full income data on all citizens,” says Marc Keuschnigg, associate professor at The Institute of Analytical Sociology at Linköping University and professor of sociology at Leipzig University.
The relationship between cognitive ability and wage is strong for most people across the wage spectrum. Above a threshold wage level, however, wage ceases to play a role in differentiating individuals of varying ability.
Above €60,000 annual wage, average ability plateaus at a modest level of +1 standard deviation. The top 1 percent earners even score slightly worse on cognitive ability than those in the income strata right below them. This is an important finding, because the top 1% earn exorbitant wages that are twice as high as the average wage among the top 2-3%, according to Marc Keuschnigg.
Recent years have seen much academic and public discussion of rising inequality. In debates about interventions against large wage discrepancies, a common defense of top earners is that their unique talents motivate the huge amounts of money they earn. However, along an important dimension of merit— cognitive ability—the study finds no evidence that those with top jobs that pay extraordinary wages are more deserving than those who earn only half those wages.
The bulk of citizens earn normal salaries that are clearly responsive to individual cognitive capabilities. But among top incomes, cognitive-ability levels do not differentiate wages. Similarly, differences in occupational prestige (an alternative measure of job success) between accountants, doctors, lawyers, professors, judges, and members of parliament are unrelated to their cognitive abilities. With relative incomes of top earners steadily growing in Western countries, an increasing share of aggregate earnings may be allocated in ways unrelated to cognitive capability, according to the researchers.
JOURNAL
European Sociological Review
METHOD OF RESEARCH
Data/statistical analysis
SUBJECT OF RESEARCH
Not applicable
ARTICLE TITLE
The plateauing of cognitive ability among top earners
Goethe University study: Investors also suffer in unregulated competitions for freely available resources
Game Theory Study by theoretical physicist Professor Claudius Gros
Peer-Reviewed PublicationIMAGE: PROFESSOR CLAUDIUS GROS, THEORETICAL PHYSICIST AT THE GOETHE UNIVERSITY FRANKFURT view more
CREDIT: UWE DETTMAR FOR GOETHE UNIVERSITY FRANKFURT
FRANKFURT. Without regulations for their use, the condition of freely accessible resources such as fish stocks, water or air can deteriorate dramatically. In economics, this is referred to as the "Tragedy of the Commons". In 2009, Elinor Ostrom became the first woman to win the Nobel Prize in Economics for her studies on this topic. Ostrom's question of how to prevent this "tragedy" is just as relevant today as it was some 20 years ago.
Game theory deals with situations in which a number of agents compete with each other, with each participant trying to maximize his or her own profit individually. One speaks of a "Nash equilibrium" if players cannot increase their returns further. The "Tragedy of the Commons" is a game theoretical scenario in which the actors do not compete directly, but indirectly: If someone takes a piece of a common pie, there will be less for everybody else.
Instead of investigating how to avoid the "Tragedy of the Commons", Claudius Gros from Goethe University’s Institute for Theoretical Physics examined the resulting Nash equilibrium, with unexpected results: If a common good is divided more or less equally among N interested parties, then each receives a share of the order 1/N. However, the respective investment costs still need to be deducted. Gros' calculations show that, in equilibrium, the actors increase their engagement until the resulting investment costs almost reach the value of the resources the individual investor can secure for her- or himself. Mathematically, the theoretical physicist was able to show that the final profit of the individual investor scales as 1/N².
The original expectation, that investors each receive a proportional share from the resource, remains correct, as Gros' research shows. However, this does not translate into an overall return of the same proportion, which is smaller by a power in the number of investors. Gros denotes the dramatic deterioration of the net profit as "catastrophic poverty", as it implies that unregulated competition drives the individual actor close to the profitability limit, viz to the subsistence level. Similarly, Gros was able to show that catastrophic poverty can be avoided when the actors cooperate with each other. Cooperation leads to a net profit corresponding to the number of investors in simple power, the classical result.
The result of the investigations is therefore that the "Tragedy of the Commons" can cause substantially more damage than previously assumed. Uncontrolled access not only leads to a potentially excessive exploitation of the resource, a topic that has been the focus of many previous studies. In addition, investors suffer themselves when only maximizing their own profits. Mathematically, Gros was able to show that technological progress intensifies this process and that either all, or the vast majority of participating investors are ultimately affected by catastrophic poverty. If anything, only a few investors – the oligarchs – stand to gain more.
JOURNAL
Royal Society Open Science
METHOD OF RESEARCH
Computational simulation/modeling
SUBJECT OF RESEARCH
Not applicable
ARTICLE TITLE
Generic catastrophic poverty when selfish investors exploit a degradable common resource
ARTICLE PUBLICATION DATE
8-Feb-2023
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