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The fair reward problem the illusion of success and how to solve it

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Document pages: 41 pages

Abstract: Humanity has been fascinated by the pursuit of fortune since time immemorial,and many successful outcomes benefit from strokes of luck. But success issubject to complexity, uncertainty, and change - and at times becomingincreasingly unequally distributed. This leads to tension and confusion over towhat extent people actually get what they deserve (i.e., fairness meritocracy).Moreover, in many fields, humans are over-confident and pervasively confuseluck for skill (I win, it s skill; I lose, it s bad luck). In some fields,there is too much risk taking; in others, not enough. Where success derives inlarge part from luck - and especially where bailouts skew the incentives(heads, I win; tails, you lose) - it follows that luck is rewarded too much.This incentivizes a culture of gambling, while downplaying the importance ofproductive effort. And, short term success is often rewarded, irrespective, andpotentially at the detriment, of the long-term system fitness. However, muchsuccess is truly meritocratic, and the problem is to discern and reward basedon merit. We call this the fair reward problem. To address this, we proposethree different measures to assess merit: (i) raw outcome; (ii) risk adjustedoutcome, and (iii) prospective. We emphasize the need, in many cases, for thedeductive prospective approach, which considers the potential of a system toadapt and mutate in novel futures. This is formalized within an evolutionarysystem, comprised of five processes, inter alia handling theexploration-exploitation trade-off. Several human endeavors - includingfinance, politics, and science -are analyzed through these lenses, and concretesolutions are proposed to support a prosperous and meritocratic society.

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