Read my new book, An Enlightened Entrepreneur:
57 Meditations on Kicking @$$ in Business and Life"4.8/5 stars" on Amazon

The Mental Model of Cumulative Advantage (“The Matthew Effect”)

The Principle of Cumulative Advantage, as noted on Thwink.org, states that:

“…once a social agent gains a small advantage over other agents, that advantage will compound over time into an increasingly larger advantage.”

Cumulative Advantage is sometimes known as The Matthew Effect or Accumulated Advantage or “the rich get richer, the poor get poorer”.

A common example of Cumulative Advantage is that a prize will almost always be awarded to the most senior researcher involved in a project, even if all the work was done by a graduate student. The senior researched has accumulated that advantage.

The game of Monopoly is often cited as Cumulative Advantage as outlined in The Matthew Effect: How Advantage Begets Further Advantage:

In the board game of Monopoly, all players begin with equal resources. Yet equal opportunity at the start soon gives way to extreme inequalities in the distribution of resources. Though there may be ups and downs along the way, the richer players tend to get richer, and the poorer players poorer, until eventually the richest player has monopolized all resources and the poor are left with nothing at all.

As successful players accumulate income-producing property through a combination of skill and luck, their cumulative advantages allow them to reinvest new income in accumulating still more property, producing still more new income. This snowballing pattern of self-amplifying accumulation results in a Matthew effect that ultimately allows the most advantaged player to crush all opponents.

The sociologist Leonard Beeghly (1989) invites us to imagine a slight variation on the game of Monopoly that more nearly resembles real life. In Beeghly’s version, each player begins with a different sum of money. Let us suppose hypothetically that some players begin the game with $5,000, others begin with $1,000, and still others with only $500.

Those who begin with $5,000 enjoy a considerable head start on the competition. They can well afford to acquire every property they land on, and they soon own a disproportionate share of the income-producing properties on the board. Those who follow after them are less able to afford properties of their own, and instead usually find themselves spending their limited resources in rent payments, enriching the large owners and impoverishing themselves in the process.

The laws of probability virtually ensure that under these conditions, the rich will get richer and the poor poorer, and through no special virtue or vice of their own. Initial advantages are parlayed into greater advantages, creating a widening gap between haves and have-nots—or, more precisely, between have-mores and have-lesses—through time.

Here’s another definition from the New York Times article Is Justin Timberlake a Product of Cumulative Advantage?:

“This means that if one object happens to be slightly more popular than another at just the right point, it will tend to become more popular still. As a result, even tiny, random fluctuations can blow up, generating potentially enormous long-run differences among even indistinguishable competitors — a phenomenon that is similar in some ways to the famous “butterfly effect” from chaos theory.”

This article on Inversion continues my quest to list out the Top 100 Mental Models Needed to Succeed in Business, inspired by Charlie Munger.

2 Comments

  • http://manoeuver.blogspot.com/ Tim Hofmann

    It’s a fascinating model.

    Questions: is it worthwhile, useful or even morally OK to identify whatever advantage you’ve got and leverage it in this way? Is that even something one can actively manage?

    I’d love to hear what you’ve got to say about it.

  • http://www.ongig.com/ Rob Kelly

    Thanks, Tim. And let me say I enjoyed the Shandy and other tips I saw on your blog.

    Regarding your question on cumulative advantage, I personally use any advantage I can get as long as it’s consistent with my values and my life purpose to positively vibrate the universe!