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The average IQ of Israel is supposedly 95, not that high.

13 How much wealth is produced by high IQ people?

14th Mar 2014

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Cognito Mentoring aims to help high potential young people self-actualize. As a part of our investigation of where the greatest leverage points are, I've been investigating the aggregate wealth of high IQ people as a class. There's a paucity of good data, and it's very difficult to reason about these things in absence of it, so I'd appreciate any thoughts.

The SAT as an indicator

The Relationship Between the Scholastic Assessment Test and General Cognitive Ability found a correlation of 0.82 between IQ and SAT scores based on 1979 data. Some people have claimed that the SAT has become less g-loaded in recent years, but a large fraction of the most intellectually impressive people who I know in my age group scored 1600 on a scale of 1600.

Longitudinal studies of high IQ children

Who Rises to the Top? Early Indicators (2013) find that people who scored at the 1 in 10k level on the SAT for < 13 year olds had median income of $80k at age 33. This is about 2.5x median income for Americans in general (of all ages), and at the 90th percentile of income for 33 year olds (). There's a confounding factor which is that plausibly people who took the SAT before age 13 came from unrepresentatively wealthy and well-educated families.

The maximum income reported out of the sample of 225 was $1.4 million. I wasn't able to find information on how this compares with other 33 year olds. The income is at about the 99.9th percentile for Americans in general (all ages). On the face of things this doesn't seem impressive, but maybe income of outliers rises dramatically over time.

Tech entrepreneurs

Bill Gates famously scored 1590 on the SAT, at a time when many fewer people scored 1600 than people did in subsequent years. He also solved a notable problem in combinatorics as a a college sophomore.
Jeff Bezos graduated summa cum laude from Princeton in computer science
Zuckerberg took a graduate course in computer science as a high school student.
Drew Houston (Dropbox founder) started programming at age 5 and scored 1600 on the SAT.
Steve Jobs tested at the 10th grade level in 4th grade.

This is broadly consistent with "top tech entrepreneurs" having IQ ~145+ (99.8th percentile).

Gates made ~ $100 billion, Jobs would have been ~$100 billion with 20% equity in Apple. Ellison ~$48 B Page $32.3 B, Bezos $32 Brin $32 B, Zuckerberg $28 B, for about $400 billion total. At present, US tech billionaires are worth $355 billion.

Total Wealth of US is $118 trillion. So if it's true that 50% of wealth of tech billionaires is concentrated in those who are of IQ 145+, then such people's wealth just about accounts for the share of wealth (~0.2%) that one would expect the IQ 145+ population to have if wealth were uniformly distributed.

By itself, this isn't very informative. What about people of net worth between $100 million and $1 billion? Between $10 million and $100 million? Do IQ ~145+ people have 0.4% of the world's wealth? 2% of the world's wealth? Is 145 the right IQ threshold to be looking at? What about IQ ~130 people (98th percentile)?

IQ and g-factor

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[-]NancyLebovitz11y180

How good a metric is money for wealth creation? I'd assume that some money goes to people who create wealth, and some goes to people who succeed at zero or negative sum competition.

[-]Curiouskid11y20

For example, Tim Berner's Lee did not make Billions of dollars for creating the HTTP protocol.

[-]fubarobfusco11y30

It probably wouldn't have succeeded if he had tried to, at least not in the usual ways. Something else would have, instead.

[-]BrandonKMLee3y10

This might suggest Dark Triad traits being the main factor of wealth siphoning (selfishness and coercion) rather than wealth creation. But at the same time it reaffirmed that IQ is worth what it is worth.

[-]gwern11y20

Positional effects are a big concern for studies which are basically just a regression on one country's individuals of their IQ against wealth or income, but you can correct a lot for this by cross-country comparisons and looking at natural experiments like iodization, and the influence of IQ is still positive.

[-]JonahS11y00

See Social value of work: income as a proxy.

[-]Stefan_Schubert11y40

In my opinion you should have made an extensive argument for this in your OP since it's really a key point of your argument.

The link is interesting but I think the mechanisms destroying the link between social value and income are stronger than argued there. To take just one example, some socially useful jobs might be more fun than others. That will increase the number of people willing to take them which will drive down wages.

Also in many areas the market distortions are strong. For instance it might be that a brilliant politician is worth hundred of billions dollars to the US economy but he could never be that well-paid. Generally in the public sector the link between income and social value is rather weak.

Within a certain profession you often have I would guess, a fairly strong correlation between the social value of your work and your income but when you compare different professions the correlation gets weaker.

In any case you have three factors: intelligence, income and social value of work. Your thesis is that the fact that more intelligent people have a higher income which shows that the social value of their work is greater. I agree with the conclusion but think that the social value of their work is far greater than their incomes would suggest. For instance academics are generally smart and the social value of their work is on average great but their incomes are not very high.

[-]JonahS11y10

The link is interesting but I think the mechanisms destroying the link between social value and income are stronger than argued there.

It establishes a Bayesian prior. Even if the correlation is weak, it can be very difficult to beat the prior.

To take just one example, some socially useful jobs might be more fun than others.

Some socially useful jobs are also less fun than others.

For instance it might be that a brilliant politician is worth hundred of billions dollars to the US economy but he could never be that well-paid. Generally in the public sector the link between income and social value is rather weak.

Yes, this is a good point.

For instance academics are generally smart and the social value of their work is on average great but their incomes are not very high.

See our page on Social value of academia

[-]Desrtopa11y20

If the correlation is weak, then lacking any other evidence, the relationship suggested by the correlation might be your best bet, but it's not a bet you should be making with high confidence.

I also think that the page underrates the strength of the arguments against the link. A couple other considerations which can undermine the link may include

*Individuals and corporations becoming wealthy via exploitation of captive markets. While in an idealized free market, individuals attract customers by providing better services than their competitors, in reality there are many cases where customers are effectively chained to a single service provider (such as in cases of utilities or transportation services.) In these cases, businesses can effectively decouple their operation costs from their revenues. Warren Buffet has explicitly described investment into businesses with captive markets as one of the cornerstones of Berkshire Hathaway's business strategy. In these cases, replacing the individuals or corporations with ones that did not exploit their market would result in a decrease in income, but an increase in societal wealth.

*Certain careers or businesses may systematically allow individuals to capture markedly different amounts of the value they create. Hard-to-replace individuals don't just create more value than people working in more easily filled positions, they also have much stronger bargaining positions with respect to the terms of their employment.

[-]BrandonKMLee3y10

Individuals and corporations becoming wealthy via exploitation of captive markets.

Can we also factor in Dark Core (or Dark Triad Traits) for the divergence between income distribution (what happens) and social value distribution (what is expected)?

[-]ThisSpaceAvailable11y00

The validity of that argument is strongest when dealing with a competitive marketplace, both on the supplier and on the consumer side. For instance, there is a large, competitive pool of people willing to work in fast food places. There is also a large pool of businesses willing to hire fast food workers that, although not quite as competitive as the worker pool, is still reasonably competitive. Thus, one can expect fast food workers' income to be a good starting point, perhaps biased in the downward direction (although other effects such as minimum wage laws may bias it upwards). Microsoft, on the other hand, is a monopoly, and its immediate consumers are often large corporations that also are not completely competitive. Thus, this argument is significantly less valid.

[-]Swimmy11y110

Garett Jones' work seems relevant here. See this and this paper for instance. Short story: IQ has a modest effect on individual earnings but average national IQ has a large effect on a nation's GDP. He cites spillover effects as the cause, which, if true, renders the question in the OP a bit difficult to answer.

I have not read these papers carefully enough to comment on the statistical work contained therein.

[-]Stefan_Schubert11y50

Interesting. It should also be noted that the differences in wealth between different countries would presumably be larger if it hadn't been for the fact that they communicate with each other. Under-developed nations reap huge benefits from being part of the same world as, e.g. the US, whereas the US does not reap correspondingly large benefits from being part of the same world as them.

That said, one wonders if it couldn't be that it is higher GDP that causes higher average IQ rather than the other way around. Does he comment on that possibility?

[-]gwern11y70

Some relevant citations: http://lesswrong.com/lw/7e1/rationality_quotes_september_2011/4r01

[-]buybuydandavis11y40

Ideas are what smart people are good at. Ideas often have tremendous value, but are difficult to monetize in themselves.

These IT guys are good at ideas, and at organizing other people to make money. I'd guess that the top guy running the show is generally not the smartest guy in the room, and in fact, his likely intelligence is limited to a standard deviation less than the general level of smart guys he can put around him. Not that you have to be stupid to be in charge, but that you can't effectively manage people too much smarter than you are, though you do want people smarter people around you.

[-]Stefan_Schubert11y40

One notable fact in this regard is that even though the population of Israel is nearly half Ashkenazi jews, the most intelligent ethnic group on Earth, scoring .5 to 1 standard deviation above Europeans, Israel is not incredibly rich but actually poorer than many European countries_per_capita). Even though Israel of course is a rather special case - e.g. it has had to fight a number of wars - this casts some doubt on the notion that one can infer from the fact that intelligent people in the US are generally wealthy to the notion that intelligent people are the ones who create wealth.

I do think, though, that intelligent people do in fact contribute enormously to progress and wealth (a related argument to this effect by me can be found here). However, I don't think that wealth is a very strong proxy for productivity or contribution to progress. Consider John von Neumann, for instance, who contributed spectacularly both to science, to the American war efforts in the 2nd world war and the cold war, and to the economy via, for instance, his contributions to the development of the computer. If people would have been awarded in accordance with their contributions, he would have died one of the wealthiest men on Earth.

That said, I do think that people who contribute more generally are better paid, but the relationship is not as strong as some people seem to believe. The economists' notion of "productivity" according to which higher-earning people are by definition more productive is highly misleading in this regard, since people tend to conflate this notion of productivity with the ordinary language notion of a productive person as someone who contributes a lot to wealth-creation.

[-]pianoforte61111y110

The average IQ of Israel is supposedly 95, not that high.

[-]JoshuaFox11y80

Israel is not incredibly rich but actually poorer than many European countries

You forget how poor Israel used to be. It started in 1948 with a Third-World level GDP. Since then, its economic growth has been among the highest in the world -- if I remember correctly, second only to South Korea. Catching up to the level of many European countries is quite an achievement.

the population of Israel is nearly half Ashkenazi jews,

That Wikipedia article you cite says that about half of Jews are Ashkenazi Jews. Jews are only about 75% of Israel. The article also describes some errors in the data it presents. Also, there is a lot of intermarriage between Ashkenazi and other Jews, to the point that the categories described in that chart represent arbitrary designations based on partial ancestry.

Ashkenazi jews, the most intelligent ethnic group on Earth

Drawing conclusions from studies about Ashkenazi Jews to the intelligence distribution of population of Israel is a stretch. Trust me, we've got a fair share of non-geniuses around here :-)

[-]Stefan_Schubert11y10

Hehe...well it wasn't meant to be a knock-down argument, but an indication that the correlation between intelligence and wealth is not as strong as the OP indicates.

P.J. O'Rourke makes a relevant comment on this question:

Why do some places prosper and thrive while others just suck? It's not a matter of brains. No part of the earth (with the possible exception of Brentwood) is dumber than Beverly Hills, and the residents are wading in gravy. In Russia, meanwhile, where chess is a spectator sport, they're boiling stones for soup.

You're right that the article says proportion of Jews, not proportion of Israelis; I was doing things a bit too fast.

[-]Nornagest11y90

No part of the earth (with the possible exception of Brentwood) is dumber than Beverly Hills

[citation needed]

[-]buybuydandavis11y30

Institutions matter for the production of wealth. Laws matter. Customs matter. Get those wrong, and you'll be boiling stones for soup.

[-]Lumifer11y-10

Institutions matter for the production of wealth. Laws matter. Customs matter.

If only these things were correlated with the IQ of the population... :-)

[-]JoshuaZ11y10

There are other complicating factors in the Israel example. About 10% of Israel is ultra-orthodox (charedi) (source) and a large fraction of them are on essentially perpetual welfare with the men staying inside yeshivot all day studying and not generating any economic productivity. Also note that by some intelligence metrics other ethnic groups outscore Ashkenazim (especially Han Chinese). This is however a minor quibble and your essential points seem correct.

[-][anonymous]11y00

Diaspora to homeland is not a valid extrapolation, as noted below.

[This comment is no longer endorsed by its author]Reply

[-][anonymous]11y30

Turn the question on it's head. How many low IQ people have generated (not been given or inhereted) wealth? And of those with low IQ who did generate wealth, how many kept it or expanded it?

It seems likely some low IQ people generate wealth. For example, the gold of the California hills in the 1800s was there for whoever found it first. I know many who found it spent it quickly for little gain or had it tricked away from them no matter what their IQ. I don't imagine many low IQ people who found gold were able to keep and expand their wealth.

My guess: high IQ can sometimes co-occur with wealth generation while low IQ wealth generation is rare. High IQ people can fall from great heights. Low IQ people fall from lower heights when they fall.

[-]BrandonKMLee3y10

Measure their Dark Factors, and see how much are made from exploiting others without proper education (the hustlers). Dark Factors are a way of determining coercion and selfishness.

[-]ThisSpaceAvailable11y00

The amount generated by a miner is not the raw value of what is mined, but that value minus what value would have been without that miner. If someone else would have mined the gold only a little bit later and/or at only slightly higher cost, then the actual miner isn't creating much wealth.

Something else to consider is that, by definition, people with < 90th percentile IQs are ten times as common as people with > 90th percentile, so even if the per person income generation of high IQ people is higher, the total income isn't necessarily higher.

[-]RolfAndreassen11y00

I know many who found it spent it quickly for little gain or had it tricked away from them

Yes, you know this.

no matter what their IQ.

This you do not know. Do you have specific evidence that high-IQ people were as likely to be tricked as low-IQ ones?

[-]trist11y30

The relevant studies all seem to be behind paywalls, but the graphs from this one looked promising.

Jay L. Zagorsky (2007): "Do You Have to Be Smart to Be Rich? The Impact of IQ on Wealth, Income and Financial Distress." Intelligence, 35 (5), 489-501.

[-]Kaj_Sotala11y30

[-]seez11y30

Is 145 the right IQ threshold to be looking at? What about IQ ~130 people (98th percentile)?

What do you mean by this? The right threshold for defining someone as high-IQ? Maybe there is a correlation but it plateaus at a certain point.

Also, I'm curious, do you believe you can increase your mentees' IQ?

Also also:

Bill Gates famously scored 1590 on the SAT, at a time when many fewer people scored 1600 than people did in subsequent years. He also solved a notable problem in combinatorics as a a college sophomore.
Jeff Bezos graduated summa cum laude from Princeton in computer science Zuckerberg took a graduate course in computer science as a high school student. Drew Houston (Dropbox founder) started programming at age 5 and scored 1600 on the SAT. Steve Jobs tested at the 10th grade level in 4th grade. This is broadly consistent with "top tech entrepreneurs" having IQ ~145+ (99.8th percentile).

How so? Seems like it's only consistent for Gates, Houston, and maybe Jobs... For the rest, that just demonstrates cool but non-standardized facts about their programming prowess. Maybe Zuckerberg's class was easy. Maybe Bezos bribed the dean. Probably not, but right now the argument looks like "they got rich because they were talented computer scientists... and therefore they must be smart... and therefore being smart makes you rich."

[-]ESRogs11y10

It seems like you are responding to a stronger claim than is actually being made. "Is consistent with" is not the same as "proves."

[-]RolfAndreassen11y20

I suggest that looking at extreme outliers is likely to be misleading or un-informative. To get Bill Gates/Steve Jobs levels of wealth, you must, as the saying goes, not only be good, but also lucky. The counterfactual Bill Gates who has the same amount of brains, drive, and other personal characteristics as ours, but who didn't get the fantastically lucky break of IBM offering him a hugely lucrative contract to "develop" DOS, would no doubt still be a wealthy man. But he would not be a byword for wealth. You would be better off looking closer to the center of the wealth distribution and seeing what the correlation (if any) is in a lot of unspectacular cases.

[-]JonahS11y30

The extreme outliers are relevant (as indicated by the fact that their wealth alone constitutes ~0.2% of world wealth: perhaps on the same order as the fraction of the population that have the same intelligence as them). The correlation between wealth and income will drop as one looks at lower income percentiles (e.g. the Study of Exceptional Talent cohort is at the 90th percentile in wealth).

[-]rthomas611y20

To get a meaningful answer I think you also have to look at all of the high-IQ people that don't generate a lot of wealth. What you really should look at is the correlation between IQ and wealth generation on average. My intuition says that there is a correlation but not a super duper strong one. (For instance I doubt having a 180 IQ results in more wealth generation than a 150 IQ.) I think cognitive empathy, or the ability to understand others' feelings and how they would react in a given circumstance, is just as important for wealth generation, if not more so. There are and have been functional autistic savants with very high IQ but low cognitive empathy that have not generated a lot of wealth.

I believe the ability to delay gratification, or think long-term, or whatever you want to call it, is more important than IQ for self-actualization. If you can't override your impulses and force yourself to follow your rational conclusions, what good is your reasoning faculty? To put it in Daniel Kahneman's terms, if you have difficulty getting your System 1 to use or go along with your System 2, it doesn't matter how powerful your System 2 is. The Marshmellow Test experiment is a good indicator of this. The children that had inherent abilities to delay gratification did better later in life by many different measures, including wealth generation.

[-]Viliam_Bur11y30

Are you just saying that there are also other important things besides IQ, or that those things are anticorrelated with IQ?

I'm asking because it seems to me that people often say the former, but silently imply the latter. For example, having good impulse control is probably more important than the difference between 180 IQ and 150 IQ, but unless there is anticorrelation, it does not change the answer to question whether 180 IQ is better than 150 IQ.

[-][anonymous]11y00

I would like to see this study in full. I think it was cited in Pfeffer's Power when he claimed that IQ is only a weak predictor of success.

Bowles and Gintis found [edited] lots of different things that contribute to intergenerationally transmitted wealth--inherited IQ was only a small part and not even most of the genetically transmitted advantage.

[deleted] Also, how might you see these questions being actionable?

[-]James_Miller11y00

I suspect there is a high expected value in testing if brain training games raise the intelligence of high IQ young people.

[-]JonahS11y00

There's a lot of data on [http://en.wikipedia.org/wiki/Working_memory_training working memory training] not working for most people. Intuitively, it seems as though certain video games improve abstract pattern recognition, but the significance of this is unclear.

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