Cumulative advantage

Today, I read a couple of interesting papers on "cumulative advantage". Simply put, cumulative advantage means that if an object is slightly more popular than another at just the right point of time, then it will tend to become more popular still.

Let me illustrate this with a simple example. In an urn, you have two balls of different colors, say green and red. You pick out one ball at random and then introduce a second ball of the same color. For example, if you picked a red ball from the urn, then put the red ball back in the urn and add another red ball into the urn such that you have 1 green, 2 red balls now. (iteration 1)

What has happened here? You have improved the chances of picking a red ball now by 16% (from 50% to 66%) and reduced the chances of picking up a green ball by the same %age, by performing a random act (iteration 1).

In the social sphere this is more profound, as human beings tend to interact with each other and follow directions. Cumulative advantage can drive an average music or book to a blockbuster. It's a bit like while watching videos Youtube, we tend to click first on videos which have the maximum views and if time permits, we move to the lower 'viewed' movies. We are hence trusting the crowds judgement that a higher viewed video will be better than a lower viewed one. With millions of people thinking the same way, huge distortions are created. Professor Duncan Watts, through his experiments published in his paper, shows how popularity develops in a controlled ecosystem.

The principle has some learnings in the investment world aswell, particularly venture capitalists.
1. It is difficult to predict winners. While it is true that better quality products have a better probability of success, there is no assured link between commercial success and quality.
2. Flexibility decreases over time. In other words, once the results are established, they become sticky.

To conclude - the next blockbuster might not necessarily be a better product. It may just be a set of lucky circumstances :-) (and a little help from you)

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