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The Davos Fallacy or Delusion 1

The Davos Fallacy: On Money and Intelligence

Some people are not as smart as they think they are. Maybe most people are not as smart as they think they are, but let’s concentrate on those who express their ‘cleverness’ audibly. Usually in a social setting. Do you recognize that feeling, sitting in a meeting or hearing somebody talk in a bar? How many people say they could write a novel about their life or look at an abstract painting, saying ‘I can do that in my garage’. Let’s explore some background before we unravel the Davos fallacy.

Obviously, this is (often subconscious) self-marketing, but they also genuinely believe they could write a novel or paint that abstract painting. Reading biographies and autobiographies about writers and painters makes you realize how difficult and time consuming the process is. When James Joyce was told by a reader it took him several months to read Ulysses, Joyce answered “It took me ten years to write”. He was too polite to add: stupid. So, why do some people say these things so effortlessly? It can actually make them sound stupid. One of the common subconscious assumptions that can lead to this overoptimism in one’s own abilities has to do with the following idea: if you earn more money, you are probably smarter.

How money can affect our perception of intelligence

In Sweden, a country known for its overarching principle that everyone, regardless of gender, has the right to work and support themselves, to balance career and family life, and to live without the fear of abuse or violence, the overly clever were statistically taken to the task. At the top end of incomes, according to a new study of 59,000 Swedish men, the highest-earning 1 per cent and the brainiest 1 per cent seem to be two largely separate groups, with little overlap. If that’s so, how should we treat each elite?

Sociologists Marc Keuschnigg, Arnout van de Rijt, and Thijs Bol, used an unusually rich dataset for their study The Plateauing of Cognitive Ability among Top Earners. When military service in Sweden was compulsory, and almost all native-born men enlisted aged 18 or 19, they were tested on cognitive ability. There were “separate paper and pencil tests for verbal understanding, technical comprehension, spatial ability and logic”. The paper also analyzes the future earnings of men tested from 1971 through 1977, and from 1980 until 1999.

Up to wages of about €60,000 (US$63,800), cognitive ability did predict income: The cleverer you were, the more you earned. So: cognitive ability was predictive to a point but above €60,000, the relationship broke down. In fact, the top 1 percent of earners had slightly lower cognitive ability than the men two percentiles below them, despite being paid more than twice as much.

It’s no wonder that cleverness barely predicts top incomes, because so many other factors matter more in working life. We all know what they are, but do they feature in the worlds of HR? There’s many factors of (bad) luck involved: family background, motivation, self-regulation, skills at office politics and even looks and height matter. Obviously some people simply care more than others about getting rich, and devote their careers to that goal. That may be especially true of those well-educated people who have no particular vocation to distract them. Brilliant people often aren’t driven by money. Many of them are intrinsically motivated: They love learning, and they make that their career goal, leading to higher performance over time. A fact often not fully leveraged by HR teams and leaders. 

In less fair countries, if we may call the US that for this blog, you’d expect top earners to be even less cognitively impressive. True, some very rich people are very bright: Mark Zuckerberg, Google’s co-founder Sergey Brin and Stefani Germanotta (now the singer Lady Gaga) were all identified and enrolled as adolescents by Johns Hopkins University’s Center for Talented Youth, notes Jonathan Wai of the University of Arkansas. But they are exceptions.

The Davos Fallacy in action

If the rich aren’t exceptionally smart, that’s one (albeit only one) strike against the right-wing argument that they deserve their money. It also implies that we shouldn’t credit them with special insight. Billionaires prancing around the snowless Davos (now an obvious reminder of climate change staring them in the face) pretending to be “thought leaders” should not be trusted any more by default than the scientists, authors, and other experts.

But how should we treat the cleverest people? Their braininess is mostly luck – some windfall combination of nature, family, background, nurture and motivations. Mindlessly rewarding that with top salaries may lead to a society stratified by intelligence (however measured) and could make diversity, equality, and inclusion (DEI) harder to achieve.

The Study of Mathematically Precocious Youth, led by David Lubinski and Camilla Benbow of Vanderbilt University, found that students in the top 0.01 percent of ability earn doctorates at around 50 times the base rate. Very clever people are over-represented in academia, other research, engineering, law and programming (“software is an IQ business”, said Bill Gates). 

When they do get rich, it’s often an unintended consequence of their passion. They seldom thrive in large organizations because they struggle to deal with those of more ordinary intelligence. Rather than funding clever people’s bank balances, we should subsidize their work. We want them to do the thinking, imagining and innovating for our societies. We should do more to stimulate them at school, and we should spend more on blue-skies research.

On The Davos Fallacy

This brings us to the Davos fallacy or delusion. 19 years ago the chairman opened with the following words: “We are faced by a world which is increasingly schizophrenic. Our world is rapidly changing and power is shifting geopolitically, in business terms and even in the virtual world. Power, wealth and well-being are spread in ever more complex ways, leading to a world which is harder and harder to understand and which often seems alien to us. It is to make sense of this world, and to tackle its complex problems and opportunities, that leaders from all walks of life will once again meet in Davos at our Annual Meeting. The World Economic Forum Annual Meeting gives all of us a chance to understand and shape the Global Agenda in the year ahead.” 

Wrapped in the rhetoric of changing the world and solving inequality, what you have is a collection of successful and (mostly very) rich people who are there to get to know each other and make deals. Perhaps the fundamental issue with the Davos fallacy is that it’s a geographically constrained, a closed network of a select few while we live in a world where entrepreneurs, presidents of nations, and CEOs and CHROs are interacting with a much larger open network of humanity. Finding sustainable solutions to large-scale problems like the energy transition or economic inequality cannot be solved by a small number of elites but only by a group representing a broader range of people throughout societies across the world.

This was an article written by Peter van Gorsel. Read more articles on our blog or watch 100+ videos on our Youtube channel!

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