Luck of the Draw

Luck may be just as important as fitness in determining who survives the market test.

A study (Phillips) found that articles published in the New England Journal of Medicine received 73% more citations subsequently when they were covered by the New York Times. But articles that were covered by the same newspaper during a three-month strike at the Times in 1978 were never cited as often as articles in editions that did reach the public. At that time, the Times put out an edition of record but did not distribute newspapers to the public. (Chronicle of Higher Education). If the newspaper was consistently correct in picking the most important articles to cover, it would not have mattered whether the coverage reached the readers or not.

Another study (Ginsburgh) found that the judges' rankings of the 12 finalists in each of eleven piano competitions held from 1952 to 1991 influenced the finalists' subsequent commercial success. However, the study also showed that those ratings did not depend simply on talent. In fact, the order in which the musicians performed, which was assigned randomly, had a critical impact on the rankings. Specifically, those who performed later in an evening or in the competition tended to be ranked significantly higher (Business Week).

These two examples fly in the face of conventional wisdom in economics, which believes that economic success depends primarily on human capital, namely efforts and skills. But luck may be just as important. The importance of luck is awkward to preach since it tends to send the wrong message to those people who are already prone to blame everything else except themselves for their failure. But there is no reason to doubt some element of luck also plays in the selection of survivor firms in the face of excessive market entries. So the survivors need not be the fittest, but just good enough to be in the finalist pool where luck becomes the final arbitrator.