Revising some views about IQ

I like to think that I am right most of the time, but I have to amend some of my earlier views of IQ as it pertains to success at life. In the past I put IQ above other factors, but now I think IQ is as important as family wealth and networking, not more so. IQ is good for some tasks but falls short in others. In such circumstances, it’s not a hindrance but does not confer any added benefit either.

Having a high IQ is good for solving problems in which the answers are contained within the axioms and can be built-up from them. So coding and math are two examples in which IQ is important because by learning the rules of coding or math, one can solve a multitude of math and coding problems and make math discoveries or develop productivity-enhancing software. The latter is especially important today’s economy and is why coders trend to earn good money. Having a high IQ helps when trying to understand a physics concept or developing a new concept. It helps also in pattern recognition, generalizing, processing information, finding order within chaos (such as finding a pattern in a string of seemingly unrelated numbers). Just with this alone you can do well in life, but only up to a certain point. All else being equal, a high-IQ person will fare better in life than someone less intelligent, because of these abilities.

But IQ does not help as much, or even at all, if we impose two conditions that one encounters fairly often in life: costs and randomness.

For the first one, costs, consider a grid of numbers, labeled 1 through 1000 and arranged randomly. Each of these numbers is hidden by a slip of paper. To succeed, one must reveal the correct number, 23, which the smart person knows in advance. This is analogous to solving a problem, and each number is likened to an attempt. However, by looking at the slips, he observes that the slips corresponding to 100-1000 are longer than those corresponding to 10-99, so he can eliminate those without even guessing. He can also eliminate 1-9 because the the slips are too short. So this is where IQ helps, by allowing one to quickly filter out wrong approaches and dead-ends. But that still leaves 10-99. If he reveals 23 he gets a large payoff, say, $1 million, but each attempt costs $1,000, which can be likened to start-up costs. The expected value is positive, but if his bankroll is too small, it’s likely he will still run out money before revealing the correct number. Now, if 100 smart people are playing this game, some will guess correctly before being ruined and held up and praised by the media for their genius (Steve Jobs and Peter Thiel come to mind). Yes, being smart helped in terms of eliminating most of the possibilities, but chance still plays a large role too. This is where family wealth helps, because having more money means more attempts. This can be mitigated to some degree by choosing careers and endeavors that have less risk and randomness, but the potential payoff is less too.

Or consider the example of trying to guess a Bitcoin private key to unlock the funds inside. No amount of IQ will help in this regard (although it can help in determining why this is true, so you don’t waste your time trying). However, if someone tells you want it is, then you can access the funds effortlessly, bypassing any possible brute force computation. This shows the immense power of having connections and ‘insider info.’ This may seem like a contrived example, but there are many examples in life in which success comes down to knowing the right people, who have the keys to successes. It’s also possible they have the keys but are missing the door, but you have a problem that could be unlocked with the key, that is of limited value to whoever possess it at the time.

Consider you want to sell books or some other product on Amazon. Like Google, the rankings of Amazon store listings is determined by algorithms, and products that rank higher have more clicks and hence sales. You observe that there are a couple of sellers who are able to consistently rank higher than you for the same products you are selling, but it’s not obvious why. You spend months trying to reverse-engineer it, but run into the cost-constraint condition above. You cannot keep trying forever. What if the answer is as arbitrary as as logging into Amazon from a VPN located in Seattle, fooling Amazon into thinking that you are affiliated with them, hence giving your store better rankings at no additional cost. This is again contrived, but sometimes the answer can really be this arbitrary and non-obvious. This info was leaked by an Amazon insider to one of the sellers, who shared it with a a second a third seller, who have formed a clique. But unless you are privy to such insider info, it’s a near-certainty you will never figure it out on your own. Knowing the right people gives an advantage that almost no amount of IQ can surmount.

A much grander, real-life example of the value of connections is Bill Gates, who established two key connections early in life that helped him become as successful as he is today: first his mom was on the board of IBM and persuaded its CEO to take a chance and hire the then-unheard of Microsoft to develop an operating system for its new line IBM computers (a decision IBM would regret dearly, as the contract didn’t grant IBM exclusivity to Ms-Dos); second, Mr. Gates didn’t have to actually develop Ms-Dos but, rather, in 1981, after securing the IBM contract, for $75,000 bought the rights to QDOS (quick and dirty operating system) and had it modified to become Ms-DOS.