IQ externalities

Philip Zimbardo’s The Lucifer Effect: Understanding How Good People Turn Evil focuses on a message that the situation is more important than the person’s disposition. Good people can do evil things if placed in the wrong situation.

One of my main responses to this message was that the disposition of other people forms part of my situation. Disposition and situation cannot be neatly disentangled.

This is similar to the case of IQ and income. As noted by Garett Jones, boost the IQ of a person by two standard deviations and you get an average 30 per cent increase in their wage. Boosting the average IQ of a country’s population by two standard deviations leads to a prediction of a 700 per cent increase in average wages. By this measure, the situation, which is the IQ of the people of the country in which you live, is more important than your own IQ.

Taking this further, the pay-off to being patient, saving and investing is contingent on the propensity towards violence of those around you. It is contingent on the foresight of those who borrow and invest your savings. It is contingent on the intelligence of the voters and politicians who create the institutional framework that affects the rewards from your work and savings.

There are some massive externalities to the behaviour of other people.