There are two common elements of economic superstars. First, there is a close connection between personal reward and size of the market. Second, there is a tendency for market size and reward to be skewed to the most talented people in the field.
Read the paper.
See also:
- Another way to describe this observation is that tournament like fields with asymetric and convex payouts favor high-variance strategies.
- Superstars grow (or at least stay superstars) because advantages accrue to the leader.
- More generally, the Pareto principle applied means the rewards are always skewed.
- How people get rich and income inequality reveals how quickly this can happen due to technology.
Links to this note
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Tournament Like Fields With Asymetric and Convex Payouts Favor High-Variance Strategies
Fields that exhibit tournaments with asymmetric and convex payouts favor high-variance strategies (variance from the benchmark mean).
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You Can Reach Further Than You Think
One of the interesting lessons from rock climbing is that people can reach much further than they think they can. When looking at the next hold, it can look so far away that we forget how long our arms and legs actually are. I’m no mountain climber but having gone climbing a few times, this stuck with me.
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When coming up with goals for your business, it’s a disservice to adjust it down to make everyone—employees, investors, yourself—feel better. There are important goals like staying alive, raising your next round, or seizing the opportunity that are the cold reality of markets that you can only temporarily avoid. While showing progress is important, it’s easy to normalize mediocrity if you’re not careful which is much worse for the company than having to tell your investors you are not meeting the goal.