The Fair Reward Problem: The Illusion of Success and How to Solve It

43 Pages Posted: 25 Apr 2019 Last revised: 29 Apr 2019

See all articles by Didier Sornette

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute; Southern University of Science and Technology; Tokyo Institute of Technology

Spencer Wheatley

ETH Zürich

Peter Cauwels

ETH Zürich; Director Quaerens CommV

Date Written: April 21, 2019


Humanity has been fascinated by the pursuit of fortune since time immemorial, and many successful outcomes benefit from strokes of luck. But success is subject to complexity, uncertainty, and change – and at times becoming increasingly unequally distributed. This leads to tension and confusion over to what extent people actually get what they deserve (i.e., fairness/meritocracy). Moreover, in many fields, humans are over-confident and pervasively confuse luck 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 in large 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 of productive effort. And, short term success is often rewarded, irrespective, and potentially at the detriment, of the long-term system fitness. However, much success is truly meritocratic, and the problem is to discern and reward based on merit. We call this the fair reward problem. To address this, we propose three different measures to assess merit: (i) raw outcome; (ii) risk-adjusted outcome, and (iii) prospective. We emphasize the need, in many cases, for the deductive prospective approach, which considers the potential of a system to adapt and mutate in novel futures. This is formalized within an evolutionary system, comprised of five processes, inter alia handling the exploration-exploitation trade-off. Several human endeavors – including finance, politics, and science – are analyzed through these lenses, and concrete solutions are proposed to support a prosperous and meritocratic society.

Keywords: success, reward, luck, merit, measurement, scenario analysis, Darwinian, evolutionary learning, equality

JEL Classification: A13; C12; C18; D39; D63; D8; G10; H30

Suggested Citation

Sornette, Didier and Wheatley, Spencer and Cauwels, Peter, The Fair Reward Problem: The Illusion of Success and How to Solve It (April 21, 2019). Swiss Finance Institute Research Paper No. 19-25, Available at SSRN: or

Didier Sornette (Contact Author)

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
41446328917 (Phone)
41446321914 (Fax)


Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Southern University of Science and Technology

1088 Xueyuan Avenue
Shenzhen, Guangdong 518055

Tokyo Institute of Technology

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552

Spencer Wheatley

ETH Zürich ( email )

Rämistrasse 101
Zürich, 8092

Peter Cauwels

ETH Zürich

Rämistrasse 101
Zürich, 8092

Director Quaerens CommV ( email )


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