Wednesday, December 12, 2012

Inefficient clumping

Using the income of political lobbyists, economists from the University of Warwick and London School of Business demonstrate that the value of who you know is at least 24% higher than what you know. This has been intuitively clear to most seeking a living but strong empirical support for the same in a contained experiment is satisfying.

This has multiple implications. First, this results in inefficient clumping and a loss of meritocracy in all aspects of life. Since the value of increasing connections is much higher than acquiring content, more time is spent in the former. The process starts early with most learning to optimize utility within these competing constraints. At the micro-level, it creates higher segregation between success and failure. Since connectivity is self-reinforcing, these trajectories can only diverge over time. Second, at the macro-level, resources are misallocated, chasing connections than content, with suboptimal outcomes for society.

Better designs of society that equilibrates the value of content and connections can set humanity on a faster trajectory to the next stage.