I claimed the other day that those of us who are in the global 1% are apt to under-estimate our good fortune. There is, in fact, quite robust evidence from other contexts that we tend to under-rate luck and over-rate skill and causality.

For example, this recent paper says:

Retail day traders in the Forex market attribute random success to their own skill and, as a consequence, increase risk taking.

This is probably because of a self-serving bias: we want to believe we are smart, and the wish is father to the thought.

However, other research shows that people also see skill where none in fact exists even in other people. Here's a study of unit trust investors:

They fail to understand that, in large populations of mutual funds, a few will outperform by pure chance...In addition, investors do not sufficiently account for volatility and are thus likely to confuse risk taking with skill. In large mutual fund populations, this can lead to an over-allocation of capital to lucky past winners.

This sort of behaviour has been confirmed in laboratory experiments. Jordi Brandts and colleagues at the Autonomous University of Barcelona got a group of students to guess the outcome of five coin tosses. They then asked other students to bet on who of the first group could best predict future coin tosses. They found that 82% of students were willing to pay to back the individual who had been most successful in predicting the first five tosses. This is consistent with other experiments by Nick Powdthavee and Yohanes Riyanto, who conclude that "an average person is often happy to pay for what could only be described as transparently useless advice."

All this tells us that people under-rate the importance of luck even when doing so costs them money; this is true in both real world and laboratory settings. It's even more likely, therefore, that they will under-estimate luck when they have incentives to do so - because they want to think that their wealth is deserved and want to oppose redistributive taxation.

I suspect that this is part of an older-attested phenomenon - that people under-rate randomness and over-rate causality, which is one reason why we draw overconfident inferences from noisy data. As Kahneman and Tversky said (pdf) in one of the early papers in cognitive biases research:

[People have an] irresistible tendency to perceive sequences of events in terms of causal relations, even when the perceiver is fully aware that the relationship between these events is incidental and the imputed causality is illusory...[This leads to] major errors in prediction and explanation, which reflect the deep contrast between intuitive reasoning and the normative theory of evidence.

You might see this as an echo of David Hume's claim, that our ideas about causality result merely from custom and habit and so are fallible.

It also, I suspect, helps explain a claim made by Hume's good friend. If we over-rate causality and under-rate luck, we will exaggerate the extent to which the wealthy deserve their fortune. As a result:

We frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous. We see frequently the vices and follies of the powerful much less despised than the poverty and weakness of the innocent...The great mob of mankind are the admirers and worshippers, and, what may seem more extraordinary, most frequently the disinterested admirers and worshippers, of wealth and greatness. (Theory of Moral Sentiments, I.III.29)