How They Figured This Out#

The study, which looked at how cognitive ability is distributed among top earners, used data from 59,000 men. These guys had to take a compulsory military conscription aptitude test. So, basically, an intelligence test everyone had to take. The study then tracked their earnings over their professional careers to see how intelligence and income linked up.

Hold On… It’s Not That Simple#

Now, before you get any crazy ideas – like that guy Ty Lopez making more crummy YouTube ads, or the “hustle bros” suddenly learning to read research papers and telling everyone to drop out of college – you gotta understand what this data really means.

The study did find a strong link between intelligence and income. Smarter people did earn more money. But this was only true up to a certain point. That point was around 670,000 Swedish Krona, which is roughly $64,000 per year.

After that income level, intelligence didn’t seem to matter as much for making more money. And at the very tippy-top end, among the top 1% of income earners, the data actually showed that dumber people did better on average.

(Side note: There’s a little clip here where someone mentions making “all that today” - twice as much - but had to bail out Cinnamon’s kid, thanking a “Mr. Peter”. The speaker calls “this guy” the best.)

Reason #1 Why Less Intelligent People Seem to Do Better at the Very Top#

One big reason is related to job types and salary ceilings.

• Smart People in Lower-Paying, High-Prestige Jobs: Some of the smartest people in the world work in incredibly high-prestige jobs that simply don’t pay top-tier salaries. Think academics and research scientists. They are brilliant, but often not high-income earners. (There’s a moment here where someone says “Guys like yourself?” and the response is something like “Yeah, how come I can be successful then?” with the reply being you could be more successful with 30 less IQ points.)
• Very Smart People in Well-Paid Jobs, But Often Below the Top 1%: Professionals like doctors, lawyers, and elite finance people absolutely need to be super smart. Their schooling and exams are tough. They are usually paid very, very well – they are “competitively compensated.” But, most of them don’t make it all the way into the top 1% of earners in the USA.
• The Top 1% Threshold: In the USA, to be in the top 1% of income earners, you need to make at least $597,000 before tax**. That's just the minimum to get in the door. The *average* person in the top 1$1.4 million before tax.
• Who Is in the Top 1%? While some senior executives, certain doctors, lawyers, and bankers can reach this level, they are a minority among the top 1%. Most people making this much money are business owners.
• The Intelligence Barrier for Business Owners: Becoming a business owner earning over half a million a year still requires being smart, but it generally has less of an intelligence barrier than, say, becoming a top surgeon who needs genius-level intellect. An employer is willing to pay only a very few types of workers that kind of money, and those jobs almost always require extremely high intelligence.

The Risk Tolerance Angle#

This leads to another point about risk.

• Highly Intelligent vs. Moderately Intelligent with Ambition: People who are highly intelligent and want a high income are at a slight disadvantage compared to people who are only moderately intelligent but also really want a high income.
• The “Comfort Zone” for the Highly Intelligent: Highly intelligent people often follow well-paid career paths as employees (doctor, lawyer, etc.). They are less likely to transition to business ownership because they reach an income level they are satisfied with. They don’t want to take the risky step of quitting a secure, well-paying job to start a business that might fail.
• The “Necessity” for the Moderately Intelligent: Moderately intelligent people who want high incomes often won’t have as many opportunities to reach the top percentiles as employees. So, for them, going into business for themselves is often the main path to reach those high incomes. They are, on average, more willing to take the risk because they aren’t giving up a super difficult-to-get and difficult-to-get-back-into career. (There’s a quick clip here saying “No, I am not going anywhere until you or one of your Butlers or bimbos writes me a check”.)

So, based only on this line of thinking, if you want to be wealthy, the data seems to suggest the best strategy is to be moderately intelligent with a lot of ambition, pushing you towards starting a business. Right?

Problem 1: Statistical Complications (The Ceiling Effect and Survivorship Bias)#

Planning your career by trying to copy the success of people in the top 1% based on this kind of data runs into big statistical problems.

• The Ceiling Effect: This happens at the extreme ends of data sets, especially when they are measured on a scale like percentiles. Imagine a class of 10 students gets a surprise 100-question quiz. 3 students get perfect scores (100%), and the other 7 get various scores below 100%. A statistician could look at this and say “A perfect score was the easiest result because it happened the most often!” That’s obviously wrong. No matter how smart you are, you can’t get more than 100%. Similarly, no matter how high someone’s income is, the top 1% is the top of the scale.
  • Let’s use the quiz example again. Suppose the two smartest kids got 100%, but an average kid also got 100% because they cheated by copying the smartest kid. The average intelligence of the kids who got 100% would be lower than the kid who got 99% but didn’t cheat.
  • In the income study, most people in the top 1% are very smart. But their average intelligence is brought down by outliers – people who reach the top 1% through means other than extreme intelligence (like the Kardashians, mentioned in the text). (The line “dude I am so disillusioned right now” is here).
  • Most people in the top 2% are also very smart, but they don’t have these non-intelligence-based outliers “stuck to the ceiling” of the 1% dragging down their average intelligence.
• Survivorship Bias: Less intelligent people who try to reach high incomes, particularly through starting businesses, face a major issue: most businesses fail.
  • A person of average intelligence starting a business is statistically very likely to fail and end up in the lower income brackets. If they fail, they aren’t counted in the top 1%. They either try again or get a regular job.
  • If they are successful, however, a business doesn’t necessarily need to be huge to generate enough profit to put the owner in the top 1% of earners.
  • A highly intelligent person starting a business has slightly better odds, but statistically, their business is still likely to fail.
  • Since there are many more people of average intelligence than highly intelligent people, there will naturally be more successful businesses run by average people than by intelligent people (even though the intelligent people had slightly better individual odds).
  • Also, remember that highly intelligent people already earning good money as employees are less likely to start a business in the first place, making them even less likely to show up as successful (or even unsuccessful) business owners in the data.
  • The key is that only the businesses that survive and make a lot of money get counted in the 1% income bracket. This makes it look like being a business owner of average intelligence is the best way to get rich, when in reality, far more average-intelligence business owners failed than succeeded.

Problem 2: The Study’s Limitations#

Interpreting any study requires looking beyond the numbers themselves. This study has specific limitations:

• Men Only: The study was conducted only on men. Men and women often have different career paths, earning patterns, and work in different fields. The results could be very different if women were included. (Someone asks “Does that make sense? You see you see the difference”).
• Type of Intelligence Measured: Measuring intelligence is tricky. The study used a military entrance exam. This kind of test is more likely to focus on the type of intelligence useful for following orders (like comprehension) rather than the creative or free-thinking intelligence that might be crucial in business or leadership roles (“in the boardroom, but not on the battlefield”).
• Location (Sweden vs. Elsewhere): The study was done in Sweden. As the text notes, only about 9% of the audience watching the related video are Swedish (based on Google’s data!). Personal finance and careers in Sweden are different from places like the United States.
  • Sweden has stronger welfare systems and worker protections.
  • They pay lower salaries on average to top employees compared to the US.
  • Interestingly, Sweden is more entrepreneurial than the States, with 20 startups per 1,000 people compared to America’s 5.

What the Location Difference Means for the Top 1%#

Because Sweden is more entrepreneurial and has lower top-end employee salaries, the study’s finding makes more sense for Sweden. In Sweden, to get into the top 1%, you likely need to be a successful business owner.

But in most other places (like the US), there’s a much higher chance you can reach the top 1% through one of those extremely well-paid jobs that require extreme intelligence (like certain doctor or finance roles). This is where the study’s findings start looking pretty bad for the “dropout of college hustle bros.”

Other Factors Not Related to Intelligence#

And we haven’t even talked about other things that can lead to a high income:

• Connections / Nepotism: Some people get high incomes not from luck, intelligence, or hard work, but because they are a “nepo baby” – they have family connections. These connections can land them a high-paying job.
  • While unfair to those without them, giving jobs to rich kids with connections can sometimes be worth it for a business if those kids use their connections to bring in more business.
  • Some of these privileged individuals might be smart, some might not be. But they don’t need to be as intelligent as a top doctor to earn a lot of money. If they land in the top 1%, they will also help bring down the average intelligence of that group.

Factors You Cannot Control#

Some factors that might land someone with lower intelligence in the top 1% are completely out of your hands:

• You can’t choose if you are born into a wealthy family with connections who can get you a high-paying job. (There’s a clip here saying “a little 100 mil, a little 100 mil, yeah”).
• You also can’t completely control whether your business is a huge success, just breaking even, or a total failure. Luck plays a significant role. (Someone says “you know what, who gives a?”).
• And while you can practice and learn, you can’t 100% control how intelligent you are. Some people are naturally better at absorbing and applying knowledge than others.

What You Can Control: Self-Assessment and Choosing Your Path#

You can’t just copy traits you see in successful people (like being “average intelligence” in this skewed study) and expect the same outcome. Being of average intelligence, by itself, won’t make you rich, just like eating caviar and flying first class won’t make you rich even though rich people do those things.

The first real step to achieving financial success is to figure out what you are genuinely good at and what you are genuinely bad at.

• This might involve admitting to yourself that you aren’t as smart or talented as you thought. It might sting your ego a bit, but being honest about your weaknesses will get you much further than pretending you’re good at things you’re not.
• Highly competitive fields (like medicine, law, etc.) heavily reward top performers, but they are equally punishing to underperformers.
  • Becoming a doctor, if you succeed, almost guarantees a very good income for life. But failing out of medical school can leave you with massive debt and put you far behind people who were more realistic about their career choices.
  • An electrician who is the best in their area and has a great reputation with builders and businesses will likely make more money than an average or below-average lawyer who struggles to find clients.

This doesn’t mean you should drop out of college. It means you need to be honest with yourself about what marketable field you could truly excel in. Focus on that, instead of just chasing career paths that only have a reputation for high pay, regardless of whether you are a good fit.

If you just chase money without considering your strengths, you might end up like the people who rushed into tech jobs hoping for big paychecks right before major tech companies announced huge layoffs. (The speaker mentions another video here about why tech companies hire and fire so much, suggesting watching it).

A Final Word#

A big thanks again to The Daily Upside for making this whole discussion possible so everyone can keep learning about how money works.

(The text ends with a snippet saying “well you made it Peter, you’re a big shot in charge of a whole bunch of your people”).