Why are Harvard’s alumni so wealthy?
[Added: Solipsist made good comments that partially account for the phenomenon, and Douglas_Knight pointed out that the figure of $200m+ below should be $30m+]
This article reports that Harvard has 2,964 alumni worth $200+ million, with a total wealth of $622 billion. These figures are staggering:
The university with the next highest figures (University of Pennsylvania) are ~2x less, and the figures for Yale (for example) are ~4x less.
If you assume that Harvard has ~60 living classes of alumni, each of which has ~2,000 students, then the wealth per graduate coming from the alumni worth $200+ million alone is ~$5 million. Furthermore, the fraction of Harvard alumni with $200+ million is on the order of 2%. [Added: from here: “Of Americans, some 30,000 have more than $100m and 2,800 have more than $500m”, so < 0.01% of Americans have that much money.]
Note that Bill Gates “only” has ~$75 billion and that Mark Zuckerberg “only” has ~$30 billion, so that they don’t account for Harvard’s decisive advantage over other universities.
What is going on here? Why would Harvard come out ahead by such a large margin? Its acceptance rate is smaller than those of Stanford, Yale and Princeton, but by no more than 25%. Moreover, this has been true historically
One can ask a similar question of University of Pennsylvania, which is significantly less selective than Yale and Princeton, but has a decisive advantage over them.
Some possible explanations for the discrepancy:
Harvard selects students with higher expected earnings.
Harvard selects students from families who are already wealthy (more than other top schools: the wealthy alumni are not self-made).
Students who aspire to make a lot of money choose Harvard (over other top schools).
Going to Harvard increases students’ earning power (more than other top schools), for example, through better networking opportunities.
Regardless of which of these explanations hold, there remains a question of why they would hold.
Is Harvard a better choice than other universities for students who aspire to be wealthy than other top schools?
Harvard isn’t just an undergraduate program. It has the first or second ranked undergraduate, law, business, public policy, economics, and medical school—attend any of those, and you can get on this list.
Also Harvard’s hegemony on this list is less of a reflection of its current position than its position decades ago, when the world’s rich (who disproportionally are at the end of their careers) were educated.
I was just going to say that! Harvard Business School and Harvard Law School are far more famous than a lot of similar institutions, and I’ve heard that the most famous (and well-paying) consulting and law firms tend to recruit heavily from them. “He went to Harvard Business School” is a pretty good answer to “Why should we pay a consulting firm a fortune to send us a young kid with no experience to tell us how to run our company?”
Thanks! Your first observation is a very important one that hadn’t occurred to me – I assumed that it was the undergraduate program that was being discussed. Are you sure that your interpretation is right (e.g. based on reading the original paper) or is it just a best guess?
Right, this makes sense
It is a guess based on this line:
George Bush went to Yale for undergrad. He went to Harvard for his Master’s in Business Administration.
Good point, thanks.
The fact that Penn in is second place is extremely suggestive that they are including business schools, although it could be the effect of the business school on the rest of the school (attitude, ability to get into finance, etc).
(I would disregard solipsist’s quote because it not from the original source.)
I jokingly tell my intro microeconomics students that a great way to reduce U.S. inequality would be to burn down Harvard.
The numbers in the article look very much like a power-law distribution. Power-law distributions are often the result of self-organizing phenomena, so it might be that Harvard actually doesn’t do anything special or explicit compared to other elite universities. It’s probably just the result of an initial lead coupled with a network or snowball effect.
Here is the original report, from wealthx. It doesn’t provide many more details, but it does say that graduate degrees are counted. The rest of this comment is largely moot in light of it.
[I provide evidence for solipsist’s hypothesis that graduate degrees count, but the original source is better]
Everyone knows that Harvard is going to come out on top in this metric. One question is why such a large margin. But another is why is Penn number two? The only thing distinctive about Penn is its business school. So two hypotheses are: (1) this includes business school; (2) the business school affects the undergrads. My impression is that the business school encourages Penn undergrads to go into finance, though it one could look up numbers. But I think the likely explanation is that these numbers of alumni include business school graduates. This should be easy to test by identifying the 28 billionaire Penn alumni. Note that Princeton and Yale don’t have business schools.
[Added: the answer to this section is that the first number is wrong, when traced back to the original source, that it should be $30+ million]
Not all Harvard grads are or become Americans, but this sounds suspicious to me. Mitchell’s wealthx link says that Harvard has 3000 grads in the mere 30m+ category, out of a global population of 186k. (It appears to me that this has a uniform methodology of actually identifying 186k people and then determining that of them 3k are Harvard grads.)
Thanks for the catch. It looks as though the news article that I was looking at misreported the figure of $30m as $200m. The figure of $30m is much more plausible.
Here is one last puzzle.
A survey of members of the Harvard Business School class of 1986 (with 271 – 35% responding) found that 4% had net worth $100m+, so (assuming that the respondents were representative) 30 total.
Assuming that the average age of the cohort was 30 in 1986, it was 55 at the time when the survey was taken. Members of earlier classes will be wealthier (out of virtue of being older) rather than less wealthy, and some of the younger ones will be worth $100m+ as well. Taking all of these people into account, one should pick up a factor of > 20x, for a total of > 600 Harvard MBAs with net worth $100m+. If this is true, > 750 of the 3000 Harvard graduates who made $30m+ actually made $100m+.
Is this plausible? Assume a power law. Since the number with $1b+ is 52, ~5.05 doublings in wealth drops the population by ~5.83 doublings. So ~1.65 doublings in wealth (from $30m to $100m) drops the population by ~1.90 doublings. So one should expect 794 Harvard graduates with $100m+, and this number isn’t too much higher than the figure of 600 above (which comes from the 20x factor, which is probably too small given that people can easily double their money over a span of 10 years by investing in the stock market). MBAs would have to constitute a really high percentage of wealthy Harvard graduates.
[Edit: Supposedly 20 of the 27 University of Pennsylvania billionaires were graduates of U Penn’s business school, suggesting that there could be a high percentage coming from business school. On the other hand, U Penn has a less selective undergraduate program than Harvard does.]
Not made, but have. I would hazard a guess that much of that money is inherited and not “made” by the current generation. This, by the way, also has implications for wealth distribution by age (because the inherited wealth becomes yours only after your parents die).
The original source says that the Harvard rich are 74% self-made, 14% inherited, and 12% some mixture.
I would like to see how they define their labels and how do they arrive at their numbers before I would be willing to believe them.
Why so skeptical?
There are strong methodological problems with making such estimates. The easiest way to go about it—send out questionnaires and tally up those returned—does not produce good numbers. Besides, wealthx is a business. I am not sure what their incentives are but I am sure they have some.
Ah, gotcha, thanks!
Yes, your power law analysis is plausible. But I’m concerned about comparing numbers from different surveys. Self-reported net worth might be very different from net worth as observed by wealthx. Also, representative response doesn’t seem very plausible to me. It could well be that wanting to claim to have $100m causes response.
Wealthx makes a distributional claim (p6): 28% of people with 30m+ have 100m+. Only 19% in America (p9).
Very good points, thanks!
2^(-1.9) = 26.7%, so the power law that I obtained fits the distributional claim that WealthX makes.
I spent more time looking for data, and I’ve gotten varying estimates for income percentiles.
These three sources say that top 1% of Americans is net worth of ~$7 million.
This reference (2012) says that there are 1.8 million Americans with net worth $2m+.
This source (2014) which says that 1.24 million Americans have net worth of $5m+.
The latter two bullet points seem incompatible with the first: I find this very disconcerting. Any idea as to what’s going on?
The last source above also reports 132,000 Americans with $25m+. This source (2012) reports 107,000 American households with $25+ million.
The WealthX reference that you cited (2011) says that there are only 57,860 people in the US with net worth $30+ million.
There’s some tension between these.
The two points below are in consonance with one another:
A reference (2011) that I cited in my top level post says that there are 81,000 people in the world with net worth $50m+.
The WealthX reference (2011) gives a figure on the order of 100k people with $50m+ worldwide.
The WealthX report on college alumni is from 2013 whereas the other WealthX report is from 2011: stock market fluctuations could have played a major role.
Anyway, if we estimate the number of American $30m+ people in 2013 at 100k, that’s 1 in 3,000 Americans.
Assuming that 50% of $30m+ alumni from top universities (I chose Harvard, Princeton, Yale, MIT, Stanford and University of Chicago) graduated from their undergraduate programs (need to avoid double-counting), and that 75% of them are self-made (in consonance with what WealthX says), one gets a figure of 1 in 200 students for undergraduates from top universities (calculated on my own), so your odds are boosted by 15x. If one looks at billionaires, one has more skewing toward the top schools: I get a figure of 1 in 5000 of becoming a billionaire: maybe odds are boosted by 100x relative to the general population.
Circling back to the Harvard MBA thing, even if there’s not a representative response to the survey, the prevalence of people of a given wealth is bounded below by the response rate. 23% of respondents reported a net worth of $20m+, given that 4% said $100m+ plausibly at least 15% had net worth $30m+, so at least 5% of the class as a whole. Thus, going to Harvard Business School would boost your odds all the way up to 1 in 20 (lower bound), 10x the base rate of undergraduate students at elite universities.
Is this plausible? Each Harvard Business School class is about 50% of the size of a Harvard undergraduate class, and top students who want to do business who chose to do undergraduate locally are more likely to go to a top school for graduate school: each of these factors pushes in the direction of the class being more select for ability. Then there’s the choice of attending: lower caliber students who chose to attend will sometimes have better chances than higher caliber students who choose not to attend. A figure of 1 in 20 seems not unreasonable, but a figure of 1 in 6 or whatever (coming from assuming the survey results to be representative) seems suspiciously high.
I’m disappointed that the figure of $200m+ was off: it was a pretty major update for me when I saw it – it made me think that that promoting effective altruism on elite college campuses, as well as improving the productivity of students at them could have really high expected value. But it was too good to be true – there was major tension between it and information that I had had previously.
Thanks very much for the exchange.
I should add that my figures don’t property take into account the ages at which people accumulate the bulk of their net worth. For “number of graduates from top universities” I considered graduates between ages of 22 and 82, but this isn’t appropriate, since most people won’t acquire most of their wealth until later in life (e.g. the average age of a billionaire is 66), so the prevalence of eventual $30m+ people should be something like 2x what I said, and similarly, for members of the general population (where I included everyone, including children) the prevalence should be something like 3x what I said.
So the actual prevalences of eventual $30+ millionaires should be something like 1 in 1,000 (general population) and 1 in 100 (graduates of top universities).
As for billionaires, there are 442 US billionaires, maybe 100 million in the appropriate age range, so 1 in 250,000 of the general population becomes a billionaire, 129 billionaires at the schools that I looked at with ~250,000 in the appropriate age range, cutting by a factor of 2 to account for possible double counting (undergraduate/graduate), we get a frequency of 1 in 4000 eventually becoming billionaires. (About 0.4 billionaires per university class.)
This analysis is quite crude – one would need the actual age distribution and not just the average age.
What are the chances of being a billionaire or getting $30m plus if you go to Harvard rather than an elite uni?
And then what about HBS rather than Harvard?
Does this include honorary degrees? Bill Gates never actually graduated, although he received an honorary degree and Harvard now claims him as part of the graduating class of 1977.
I don’t know what’s going on but due to this study, I have little faith in elite colleges to actually increase a student’s earning power.
I remember someone on here saying that Harvard is actually cheaper for a middle-class family than many other schools due to financial aid. But I wonder how much that matters. It may be that the kind of college preparatory experiences that help a person be admitted to Harvard are disproportionately available to the wealthy, so that a strong bias remains.
It might be worth comparing Harvard and Oxford (Oxford occupies a similar power law position in the UK, but some covariates differ in a possibly instructive way—Oxford has a medieval college system which makes it harder to coordinate investments, and UK is relatively small). Harvard’s endowment far outstrips all the Oxford colleges put together.
Another major difference: Harvard is (if I’m correct?) incredibly expensive, whereas Oxford (at least for British students) costs the same to attend as any other British university and all fees are paid upfront by the government, with the loan repaid latet only under certain conditions. Obviously there is also further help for students from low income families, but I assume Harvard must have something like that too?
Jonah suggests that Harvard is no more expensive than American public universities. One of Larry Summer’s projects was to increase financial aid and to make it more transparent. If he had remained president, I think it would now be significantly cheaper than its competition.
No he didn’t. He compared Harvard to Berkeley. Berkeley is another elite institution. The cost of attending a university depends on its status, not whether it’s public or private.
What leads to your belief that about the cost of universities? The costs are quite opaque.
Private schools all have the same nominal tuition. The most elite ones have the biggest endowments and appear to me to give more financial aid. Less elite ones do try to lure students away from elite schools with merit grants, but I think that merely allows them to match the price of elite schools for the very few students that they are able to lure away, not undercut the price.
They didn’t used to. The prices have become more similar. When I attended Loyola, it cost half as much as an elite college. Now it costs about the same. This is very strange, and I wonder what allows non-elite private colleges to charge so much now.
Anyway, I see his point was sort-of valid, because Berkeley has a much lower nominal tuition. It seems somehow I missed that on my first reading? But this is not especially helpful, because most states don’t have state colleges with elite standing. All I can think of off-hand is Berkeley and U of Michigan. People from out-of-state must pay much higher tuitions, which are (last I checked, years ago) scaled to the school’s status.
Harvard is expensive, but there is a lot of aid for those who cannot pay, and it is not unduly expensive compared to other american universities that aren’t nearly as rich. Lately even public universities in the US have gotten very expensive.
It is true that the fee structure is another big covariate.
My general impression is that Oxford is more closely associated with political power than financial power. Cambridge has a far larger endowment than Oxford and in fact it’s equivalent to some of the US Ivy League schools. But Christ Church, Oxford alone has had as many Prime Ministers among its alumni as Cambridge in its entirety.
Cambridge’s Endowment: £4.9 billion
Oxford’s Endowment: £4.03 billion
You need to add in the endowments of the colleges as well. The richest college at Cambridge (Trinity) has an endowment of about $1.5bn; whereas the richest college at Oxford has only about $300m.
Cambridge’s total colleges endowments is 2.8 and Oxford’s 2.9. But the figures above already include this.
Does it?
The numbers in this newspaper article from 2013 suggest that (1) Cambridge has a substantial advantage over Oxford in total alumnar wealth (as opposed to number of wealthy alumni/ae) and (2) there are other rivals not all that far behind. I wouldn’t want to make a large bet that there isn’t a power-law distribution there, but it certainly doesn’t seem much like the alleged US situation with Harvard alumni/ae twice as rich as any other university’s.
[EDITED to add: It appears that these numbers come from the same organization as the Harvard ones.]
Right, in the UK they call it “Oxridge.” But if you plot the histogram it will probably look like the power law also.
I’ve always heard it as “Oxbridge.”
It doesn’t look like the same power law. The #alumni figures for UK universities go 401, 361, 273, 127, 106, 99. The figures for US universities go 2964, 1502, 1174, 889, 828, 658, 581, 568. The US figures drop hugely from #1 to #2 to #3. The UK figures don’t.
(If you pretend that Oxford and Cambridge are in fact a single university, then you do get a nice power law fit with a much more negative exponent than for the US figures. But, as it happens, they are two different universities.)
That is interesting (although we would have to do a goodness of fit test).
Given the statistics, that’s almost a tautology.
All these things may work together: rich kids who value money a lot go to Harvard, which gladly accepts them, in order to network with other greedy rich kids.
What we need to do is convince Harvard to perform a double-blind test. Accept half their students as normal, and the other half at random from their applicants. We’ll have an answer within a couple decades.
I’d lean towards the “networking” explanation as the strongest factor among those you posited. Other schools in the country may provide just as high quality education, or even better in certain fields, but Harvard is still the most recognized name in higher education in America, and has a long history of prominent alumni associated with it. It’s an extremely good place for some of the brightest minds in the country to meet people who can get them advantageous placement to make use of their abilities.
Plus, having the most recognized name in higher education is a very valuable signaling asset. People in pretty much every line of business in the country associate a lot of status with “Harvard graduate.”
From what I recall reading about Harvard admissions practices, I suspect that the first explanation, “Harvard selects students with higher expected earnings,” is the biggest factor. And that a lot of schools try to do the same thing, but students who get accepted to Harvard and some other schools are more likely to choose Harvard, since it’s generally regarded as the best.
Am I blind or does the linked article not even say who compiled the list?
WealthX.com made a similar list based only on billionaire alumni. “Harvard has graduated some 52 billionaires, with a collective fortune of $205 billion”. Compare the figures above: “Harvard has 2,964 alumni worth $200+ million, with a total wealth of $622 billion”.
So Harvard has almost 3000 alumni with individual wealth of $200m-$1bn, collectively worth $420 billion; and then it has about 50 alumni with individual wealth >$1bn, collectively worth $205 billion. The average individual in the second group is about thirty times as wealthy as the average individual in the first group.
But wait! Jonah mentioned Gates ($75bn) and Zuckerberg ($30bn). So just two of the Harvard billionaires, are worth as much as the other 50 Harvard billionaires combined. And one of those two, Gates, has more than twice the wealth of the guy in second place.
To sum up: (Gates > Zuckerberg) > (50 lesser billionaires) > (a thousand lesser “hundred-millionaires”) > you
3000 * $200 m = $600 b, lower bound.
I don’t have any conclusion to draw from this. Added: actually, I think the answer is that the Daily Mail is misquoting wealthx and the 3000 alumni have at least $30m.
This list appears to have been compiled by WealthX as well (I found references to it by Googling).
Elite university admissions policies are really important, since virtually all of our ruling class went to Ivy League schools (especially Harvard).
The important point is that elite university admissions aren’t all that meritocratic. Things like ethnicity, region of origin, legacies, athletics, and perceived student ideology matter a lot. For example Carlos Espenshade found that students who mentioned belonging to groups perceived as “conservative” like 4H Club were much less likely to be admitted than other students with similar grades and test scores.
Rich aspire for glory, so gamifying this could be prosocial and profitable. They may donate back to Harvard to exponential raise it’s potential of raising other profiteering alumni.
What’s the distribution of family wealth among Harvard incoming freshmen?
I don’t know about wealth, but according the freshman survey, the median income is $125k.
Another major difference: Harvard is (if I’m correct?) incredibly expensive, whereas Oxford (at least for British students) costs the same to attend as any other British university and all fees are paid upfront by the government, with the loan repaid latet only under certain conditions. Obviously there is also further help for students from low income families, but I assume Harvard must have something like that too?
I was waiting for you to suggest that we should wear gold medals because they make you run faster.
The standard guess is that most of the effect is in three parts, networking, background and field. Only the first one will help someone who aspires to be rich, and I suspect the first part of this effect is not unusual at Harvard.