What Determines Winners?

Experts in the entertainment industry and many other fields put great effort into predicting what people will like, what will sell. Great effort goes into researching people's tastes and preferences. In spite of this, predicted big hits frequently crash, while unknown songs or movies can rise from nowhere to become wildly popular. Interesting experiments done by Salganik, Dodds and Watts. (PDF here) suggest a reason for this failure in prediction: People do not make decisions about what they like independently of each other, but rather tend to like what they see other people liking. Here are some edited clips from a review of the work written by Watts:

..differences in popularity are subject to what is called “cumulative advantage,” or the “rich get richer” effect. 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. Thus, if history were to be somehow rerun many times, seemingly identical universes with the same set of competitors and the same overall market tastes would quickly generate different winners: Madonna would have been popular in this world, but in some other version of history, she would be a nobody, and someone we have never heard of would be in her place.

To examine how cumulative advantage might work, a website set up by the authors recruited 14,341 participants to listen to, rate, and, if they chose download songs by bands they had never heard.

Some of the participants saw only the names of the songs and bands, while others also saw how many times the songs had been downloaded by previous participants. This second group — in what they called the “social influence” condition — was further split into eight parallel “worlds” such that participants could see the prior downloads of people only in their own world. We didn’t manipulate any of these rankings — all the artists in all the worlds started out identically, with zero downloads — but because the different worlds were kept separate, they subsequently evolved independently of one another.

In this artifical market one song ranked 26th out of 48 in quality; yet it was the No. 1 song in one social-influence world, and 40th in another. Overall, a song in the Top 5 in terms of quality had only a 50 percent chance of finishing in the Top 5 of success.

...social influence played as large a role in determining the market share of successful songs as differences in quality. It’s a simple result to state, but it has a surprisingly deep consequence. Because the long-run success of a song depends so sensitively on the decisions of a few early-arriving individuals, whose choices are subsequently amplified and eventually locked in by the cumulative-advantage process, and because the particular individuals who play this important role are chosen randomly and may make different decisions from one moment to the next, the resulting unpredictably is inherent to the nature of the market. It cannot be eliminated either by accumulating more information — about people or songs — or by developing fancier prediction algorithms, any more than you can repeatedly roll sixes no matter how carefully you try to throw the die.

This lesson is not limited to cultural products either. Economists like Brian Arthur and Paul David have long argued that similar mechanisms affect the competition between technologies (like operating systems or fax machines) that display what are called “network effects,” meaning that the attractiveness of a technology increases with the number of people using it...even a modest amount of randomness can play havoc with our intuitions. Because it is always possible, after the fact, to come up with a story about why things worked out the way they did — that the first “Harry Potter” really was a brilliant book, even if the eight publishers who rejected it didn’t know that at the time — our belief in determinism is rarely shaken, no matter how often we are surprised. But just because we now know that something happened doesn’t imply that we could have known it was going to happen at the time, even in principle, because at the time, it wasn’t necessarily going to happen at all.