The Panda Principle

Previously, I talked about how markets tend to grow stale as they end up in a state of low creativity as they reach a Nash Equilibrium. An equilibrium is in general a stable point in a dynamical system where small disturbancies will die out, leaving the system still resting at the equilibrium. This type of point is also called an optimum. So does that make a market at a Nash Equilibrium optimal? Hardly. In fact, one could argue that it most certainly must be sub-optimal from one prespective or the other. A market is as said a very complex beast, and as such probably has many stable optima (or equilibriums), and the fact the a particular stale market has landed where it is, is more on the happenstance side than by smart design. The likelyhood that the equilibrium reached is the globally ”best” for all involved parties is probably quite low. But, and this is the crucial point, when a Nash point is reached, there is no simple way to get out to a new, greener spot somewhere else.

In eveolutionary biology this is known as the Panda Principle, which is derived from the fact that a species such as the Panda is actually not very optimal, having quite small and silly thumbs not very suited for climbing bamboo stalks. The panda is good enough though, and since it is here it blocks new species from evolving into its niche. On the other hand, if a fully evolved and globally more optimal species in the panda niche were to be introduced into the same habitat, the panda would be in for a tough match indeed.

In the words of Stephen Jay Gould, the famous american biologist that coined the Panda Principle term

”Evolution leads to the occupation of niches by locally optimal creatures, not by globally optimal ones”

Markets are also subject for evolution, with companies being the species that compete for resources in the form of money. The panda principle is actually very adept in explaining many peculiarities in world economy;

Credit Cards

Why is there no good, secure way to make electronic payments? The omnipresent credit cards have been around for decades, without changing appreciately since their conception. When they were introduced, card fraud was not much of an issue and so security was not a big consideration. In the connected world of today, the situation is quite different with credit card fraud increasing rapidly (PDF).

Yet, the credit card is still by far the most common mode of electronic payment system, despite the fact that numerous of other schemes have been introduced in pursue of a more secure system. But it is really very difficult to replace the current system, since the installed base of card readers, software, bank systems and so on is so large and represents such a huge combined value. A replacement will have to wait until a system arrives wich is much more secure, has both online and offline precence, and at the same time comes with low installment costs when scaling to a global size. Not a very easy task, indeed.

Windows

I can’t resist using the panda principle metaphor on everybodys favourite love/hate affair Microsoft Windows. With so many people constantly nagging about the different installments of the worlds leading OS, regarding security, stability and just about every other aspect of the product, why is this still the most popular OS by a large margin? When it arrived in the 80’s as MS-DOS, Microsoft were blessed by one of history’s biggest business oversights when IBM licensed an outsider to deliver the OS for their new PC platform.

Since then Windows has become so entrenched in the everyday business and lives of so many people and companies that replacing it seems virtually impossible. All while people using some flavour of Unix or Mac OS scoff at the unfortunate rest of us. I will not elaborate any further about if they are right or not, and which is really the best OS, but the fact remains – Windows can hardly be seen by anyone as anything but a small approximation to the best (globally optimal) solution to the need for computer operating systems. Maybe something like this can come in and break Windows dominance in the future, your guess is as good as mine.

Don’t Let the Panda Sit On You

The lesson to take away from my ramblings here should be that even though you think you have a superior solution to some problem, that is not enough. If there is a 800 lbs panda solution to your problem out on the marketplace already, think again before you go at it. Maybe the time is right and your solution is so much better, easier and competitively priced that you can replace the panda, but the odds are against you. But do distinguish the panda from the gorilla, which is a big, dominant player in a marketplace, but that does not neccessarily have any entrenched panda principle to its solutions. Not saying that gorillas are any eaier task, just different. The worst beast of theam all would be the Panrilla (or is it Gonda?), the fearsome cross breeding of the two. Anybody thinking Microsoft again?

---

Possibly related posts: (automatically generated)

• Rube Goldberg-esque Video Shows Off Non-Touch Tech