Were the billionaires born rich?

Most rich people became rich by being born rich. This wisdom seems so obvious that I have never questioned it. Thus, the original goal of the little research project that I describe below was to quantify how often “poor” people become rich and whether there are any trends in time, making it more difficult to become rich in the recent decades.

The basis of the study was the Forbes billionaires list for 2011. (Note that this list is already somewhat outdated – for example, it includes Steve Jobs.) The billionaires were looked up in Wikipedia and then classified into three groups, depending on how they became rich:

i)        People who inherited the wealth from their parents/spouses/other relatives. (designated as “rich family”)

ii)       Those who came from a “poor” background, ranging from really poor to university professors or owners of a small business, such as a grocery store (“poor family”)

iii)     Those who did not inherit the wealth, but were otherwise well positioned for starting a business due to the connections of their parent, i.e. children of politicians, CEOs of companies etc. (“promising family”; Bill Gates, for example, was assigned to this category)

There is also the fourth group – those, about whom the Wikipedia does not contain enough information to classify them into one of the three categories above.

The figure below shows how the number of people in each category increases with the number of the topmost billionaires taken. For example, among the top 100 billionaires, 33 were born “rich,” 35 grew all the way from the bottom, 20 had a connected family and 12 are of unknown background. The figure does not continue beyond 281st billionaire, since the number of those, whose background is undetermined, reaches almost 20 percent and grows even faster after that.

The next figure shows a similar study for the 412 US billionaires, for whom the Wikipedia information is more complete. Still, at the end the number of those with unknown background reaches 25%.

One observes that the fractions of those coming from the “poor” and from the “rich” backgrounds are approximately the same. Those coming from the “promising families” together with the “poor” form the total number of self-made billionaires. However, the high number of “unknowns” means that the claim that most rich people were born already rich may be technically true. Nevertheless, it is not as striking as one could have expected, and one might expect that the ration of self-made rich and born rich continues to lower incomes (below the billion.)

Let us look how the US millionaires are distributed depending on their age, see the next figure. In order to smooth the fluctuations, the age was changed in the steps of 5 years.

There are no substantial differences between different categories. Most billionaires are older than 40, which in the case of the “poor” is due to the time needed to earn such a big capital, whereas in the case of the “rich” is about the time when one’s parents pass away and leave the inheritance. The small number of the extremely young billionaires are mainly those, who made their money in high-tech or internet industry, such as, for example, Mark Zuckerberg who is now 27. However, this number is statistically too small to claim that becoming rich has become easier in the recent decades.

Similarly, the decrease of the number of billionaires beyond the retirement age probably has to do more with mortality than with lower social mobility during the years when these people were young (Great Depression and World War 2.)

Dating and the game theory

A game-theoretical approach to dating (with a bit of math). Note that the model is nearly identical to the one that I used in my recent post on dating, but the author develops the strategies to much greater extent:
"Here are some ground rules (basically the same rules as on MTV’s show Next):
1. You only date one person at a time.
2. A relationship either ends with you “rejecting” or “selecting” the other person.
3. If you “reject” someone, the person is gone forever. Sorry, old flames cannot be rekindled.
4. You plan on dating some fixed number of people (N) during your lifetime.
5. As you date people, you can only tell relative rank and not true rank. This means you can tell the second person was better than the first person, but you cannot judge whether the second person is your true love. After all, there are people you have not dated yet."

Added later:
All this is not as ridiculous, as it sounds - it is the algorithm that is used by most "single and looking" people that I know, particularly by those who use the internet dating. Even though most of them don't formulate it so clearly.

My article points out that this algorithm always fails, and that there is much truth to the statement that you meet your love when you are not really looking for it (i.e. when you don't bind yourself by silly rules.) - again, this is what many people who found a partner say.

The article, that I added today, has a definition of success in dating that is different from mine. It is certainly useless in terms of finding a soulmate. But if the goal is to get married  - it is a big improvement, compared to what most people normally do.

Mankiw on stimulus spending

Addition to my "stimulus vs. austerity" collection (here, here, here, here, here, and here) - old Gregory Mankiw's article on the disadvantages of stimulus spending.