Jordan Peterson | Price's Law and How it Relates to Many Things Including Business

Summary

The script discusses the distribution of productivity and creativity, highlighting the 'Price's Law' which states that the square root of individuals in a domain contributes to 50% of the work. It emphasizes the exponential growth of incompetence and linear growth of competence as companies scale, leading to a concentration of wealth and productivity among a small percentage. The speaker uses examples from classical music, sports, and city sizes to illustrate this universal principle, suggesting that the disparity is not just a result of inequality but a deeper systemic issue. The script also touches on the challenges of integrating creative individuals into corporate structures and the difficulty of maintaining success in dynamic landscapes.

Takeaways

• 📊 The distribution of creative output or productivity often follows a dismal pattern where the median person contributes very little.
• 🔍 'Price's Law' states that the square root of the number of people in a domain does about 50% of the work, highlighting the concentration of productivity among a small group.
• 📉 As companies grow, incompetence grows exponentially while competence grows linearly, suggesting a potential for organizational inefficiency.
• 💡 In large organizations, the most productive employees (those who do half the work) might not be recognized, but they are crucial to the company's success.
• 🚨 When layoffs occur in large companies, the most productive employees are often the first to leave, leading to a decline in overall productivity.
• 🎓 Price's Law was observed in academia, where the median number of publications for a PhD graduate is one, indicating a highly skewed distribution of scholarly output.
• 🎼 In classical music, the works of just five composers make up 50% of the repertoire, illustrating the dominance of a few in cultural impact.
• 🏦 The principle of wealth distribution is similar across various domains, including savings accounts, where the median person has none, and the top 1% holds the majority.
• 🏆 Success in fields like sports, music, and business often follows a similar distribution pattern, with a few individuals or entities dominating.
• 🎲 The outcome of iterated trading games, like Monopoly, can lead to a concentration of resources, reflecting the underlying dynamics of wealth and success distribution.
• 💼 Companies can quickly enter a 'death spiral' where they lose their most productive employees and struggle to recover, emphasizing the importance of recognizing and retaining top talent.
• 🔄 There is significant churn at the top of wealth distribution, with individuals cycling in and out of the top percentiles, indicating fluidity at the highest levels of success.

Q & A

What does the speaker describe as 'dismal' in the context of the script?

The speaker describes the distribution of scores or achievements as 'dismal', indicating that the majority of people have not done anything creative in their lives.

What is the 'Price's Law' mentioned in the script?

Price's Law is the principle that the square root of the number of people in a domain does 50% of the work, highlighting the disproportionate contribution of a small number of highly productive individuals.

How does the speaker illustrate the concept of Price's Law with employees in a company?

The speaker uses the example of employees in a company to illustrate Price's Law, stating that as the company grows, the number of employees doing half the work remains a small percentage, while the majority contribute less.

What is the consequence of a company experiencing layoffs according to the script?

The consequence of layoffs, as described in the script, is that the most productive employees, who have options, tend to leave first, leaving the company with less productive employees and potentially entering a death spiral.

What does the speaker suggest about the distribution of wealth or productivity in various domains?

The speaker suggests that the distribution of wealth or productivity follows a similar pattern across various domains, with a small percentage of individuals holding or contributing a significant majority.

How does the speaker relate the distribution of wealth or productivity to the game of Monopoly?

The speaker relates the distribution to Monopoly by explaining that as the game progresses, one player ends up with most of the property and money, while others end up with none, illustrating how a few can accumulate a majority of resources.

What does the speaker imply about the difficulty of maintaining success for companies?

The speaker implies that maintaining success for companies is challenging due to the underlying landscape shifting and the difficulty of integrating creative people into a company's structure.

What is the significance of the '1%' in the context of the script?

The '1%' signifies the small fraction of people who consistently hold or contribute the majority of wealth or productivity in various domains, and it is highlighted as a common phenomenon across different areas of life.

How does the speaker describe the churning at the top of wealth distribution?

The speaker describes the churning at the top as a dynamic process where individuals have a certain probability of being in the top percentiles for at least a year of their life, indicating that it's not always the same people at the top.

What challenges does the speaker mention regarding creative people in a company?

The speaker mentions that creative people are troublesome to work with because they constantly come up with new ideas, making it difficult to evaluate them using traditional strategies, and they are often filtered out at the bottom of a company.

What does the speaker suggest about the difficulty of escaping from a state of 'zero'?

The speaker suggests that escaping from a state of 'zero', such as poverty or lack of achievement, is very difficult due to systemic barriers and the compounding effect of having nothing to begin with.

Outlines

00:00

📊 Understanding the Distribution of Productivity

The first paragraph discusses the concept of productivity distribution, highlighting the stark reality that the median person contributes minimal creativity in their life across various dimensions. It introduces 'Price's Law,' which states that the square root of the number of people in a domain is responsible for 50% of the work. The speaker illustrates this with examples of employees and their productivity, emphasizing that as a company grows, incompetence grows exponentially while competence grows linearly. This leads to a situation where a small percentage of highly productive individuals carry a disproportionate amount of work. The paragraph also touches on the challenges faced by large companies during downturns, where layoffs can disproportionately affect the most productive employees, leading to a decline in overall company productivity. The concept is further expanded to various domains, including scientific productivity, classical music, and sports, showing that a small number of individuals or entities dominate in their respective fields.

05:02

💰 The Inevitability of Wealth Inequality

The second paragraph delves into the topic of wealth inequality, suggesting that the accumulation of wealth by a small percentage of the population is an inevitable outcome of 'iterated trading games.' It discusses the difficulty of redistributing wealth without it naturally reverting to a concentrated state. The speaker provides statistics on the likelihood of individuals entering the top income brackets, indicating a degree of fluidity at the top but a consistent concentration of wealth among a very small group. The paragraph also touches on the challenges companies face in maintaining success over time, with the average Fortune 500 company lasting only 30 years. It discusses the death spiral that companies can enter, which is difficult to escape once initiated. The speaker also addresses the challenges of integrating creative individuals into a company's structure, as they often do not fit into traditional evaluative metrics and can be disruptive to established processes. The paragraph concludes by emphasizing the difficulty of escaping from a state of 'zero,' which can be likened to poverty, where a lack of resources creates a cycle of disadvantage that is hard to break.

Keywords

💡Distribution of scores

The term 'distribution of scores' refers to the spread or range of outcomes or achievements across a group, often depicted graphically. In the video's context, it is used to describe the disparity in creative output or productivity among individuals, with a dismal view that the majority have not contributed significantly to any creative endeavors.

💡Median

Median is a statistical measure that represents the middle value in a list of numbers sorted in ascending or descending order. In the script, the median person is described as having not done anything creative, emphasizing the lack of creative contribution by the average individual in the distribution.

💡Price's Law

Price's Law, named after Derek J. de Solla Price, is a principle that suggests the square root of the number of people in a domain does 50% of the work. The video uses this law to illustrate the concentration of productivity among a small group of individuals, and how as organizations grow, the proportion of competent individuals remains the same, leading to exponential growth in incompetence.

💡Incompetence

In the video, 'incompetence' is used to describe the lack of productivity or effectiveness among a large portion of employees in a company. It is highlighted as a growing issue as companies expand, with the video suggesting that the majority of work is done by a shrinking percentage of employees.

💡Productivity

Productivity in this context refers to the efficiency and effectiveness with which work is done. The video discusses how productivity is unevenly distributed, with a small percentage of individuals contributing disproportionately to the overall output.

💡Hyper-productive

The term 'hyper-productive' is used to describe individuals who are exceptionally productive, outperforming the majority in their field. The video script uses this term to emphasize the extreme disparity in contributions among individuals, such as the top 1% of composers who dominate the classical music repertoire.

💡Creative production

Creative production refers to the generation of original work or ideas, often in the context of art, music, or innovation. The video discusses how creative production follows a similar distribution pattern to other areas, with a small number of individuals producing a majority of the work or content.

💡Iterated trading games

Iterated trading games are repeated interactions where participants trade resources or goods. The video uses this concept to explain the natural tendency for wealth or success to accumulate over time, leading to an unequal distribution where a few individuals have significantly more than others.

💡Wealth distribution

Wealth distribution refers to the way in which money and assets are spread among a population. The video script discusses the uneven nature of wealth distribution, where a small percentage of individuals hold a large portion of wealth, which is a consequence of iterated trading games.

💡Churning

Churning in the context of the video refers to the turnover or movement of individuals in and out of certain economic brackets, such as the top 1% or top 10%. The script mentions that there is a significant amount of churning at the top, indicating that while not everyone remains in these brackets permanently, a small group consistently dominates.

💡Zero

In the video, 'zero' is used metaphorically to represent a state of non-contribution or lack of resources. It is highlighted as a difficult position to overcome, whether in terms of creative output, wealth, or productivity, as it represents a starting point from which it is challenging to make progress.

Highlights

The distribution of scores is dismal, with the median person not having done anything creative in their life.

Price's Law: The square root of the number of people in a domain does 50% of the work.

As company size grows, incompetence grows exponentially while competence grows linearly.

In large companies, the top 100 employees may do half the work, leaving the other 90% to do the other half.

Highly productive employees often leave during layoffs, leading to a less productive workforce.

Price's Law applies to various domains, including scientific productivity and creative production.

The median number of publications for a PhD graduate is one, indicating a skewed distribution of productivity.

A small percentage of people are hyper-productive, dominating various fields such as music, sports, and finance.

The 1% issue is prevalent across all realms of creative production, not just wealth distribution.

The distribution of success in games like Monopoly mirrors real-world economic distributions.

The final state of iterated trading games often results in one person having all the resources.

The concentration of wealth is an inevitable outcome of economic systems and trading games.

There is a high turnover in the top 1%, with individuals cycling in and out of this bracket.

Companies often struggle to integrate creative individuals, who are essential for innovation.

Creative people are difficult to evaluate due to their novel contributions, which defy standard metrics.

The difficulty of escaping from a 'zero' state is a common challenge for both individuals and companies.

Fortune 500 companies have a short lifespan, often due to an inability to adapt and innovate.

The 'zero' state is a pit that is hard to escape, analogous to poverty traps for individuals.

Transcripts

so so there's there's the distribution

of scores

now that's dismal that's a dismal thing

to look at you have to understand that

why look at this zero right

the median person has not done anything

creative ever in their life with

anything on any dimension right it's

really important to know that and then

you have these horrible people out here

right they do everything they do

everything price is law here's prices

law this is something to hammer into

your heart the square root of the number

of people in a domain do 50% of the work

okay so let's let's go through that you

have ten employees three of them do half

the work makes sense that's reasonable

you have a hundred employees ten of them

do half the work that's problem so the

other 90% are doing the other half who

cares about them you have 10,000

employees a hundred of them do half the

work right so here's that here's a nasty

little law as your company grows

incompetence grows in it exponentially

and competence grows linearly got it

right because it with ten it's three who

are doing half the work but at ten

thousand it's a hundred that are doing

half the work so nine thousand nine

hundred of your employees are doing as

much as the best 100 you might not even

know who the best 100 are but probably

they know and maybe their peers know too

and so one of the things that's really

interesting when big companies start to

shake which means maybe they've had a

bad quarter or two bad quarters and the

stock price starts to tip down and the

people the hot people who have options

are not very happy about that and maybe

they start to announce layoffs all the

hundred people who have opportunities

leave and they're the ones who were

doing half the work so boy that puts

your company in a pretty rough situation

because now you've got the ninety nine

hundred people left over who we're only

doing half the work and the next time

you announced layoffs the next most

productive hundred leave and so then

you're left with nobody who's productive

at a massive overhead payroll prices law

you can look that up to soul a price to

soul a price is a guy who was looking at

scientific productivity and one of the

things he found was when he was looking

at PhD students is that the median

number of publications for a PhD

graduate when he did his work which was

in the early 60s was one okay half as

many had to

half as many as that had three half as

many as that had four it's a real step

down and one of the corollaries of that

is that there's a certain number of

people who are hyper productive and

that's these people out here and if you

were graphing the distribution let's say

you graphed how many people in that

population of 300 had $10,000 in a

savings account it would look very much

like this some of them would have or

some of some of them would most people

would have like no savings whatsoever

the median person would have no savings

whatsoever and then you go up here where

the 1% is they have all the money but

the thing you want to understand about

that 1% issue that you always hear about

is that it applies in every single realm

where there's difference in creative

production every realm doesn't matter

number of records produce number of

records sold number of compositions

written so here's here's an example 5

composers produce the music that

occupies 50% of the classical repertoire

right Bach Beethoven Brahms

Tchaikovsky who's Mozart that's right

those 5 ok so here's something cool so

you take all the music those people

wrote 5% of the music all those people

wrote occupies 50% of the music that of

their writing that's played so not only

do almost all the composers never get a

listen but even among the composers who

do get a list and almost none of their

music ever gets played so so then that's

a that's another example of this prices

loss Kaling so when it applies to all

sorts of things like number of hockey

goals scored is also distributed this

way number of basketball basketball

basketball successfully put through the

hoop follows the same distribution size

of cities follows the same distribution

it's a weird it's a weird law and you

can think about it in part why does this

happen well imagine what happens when

you play Monopoly what happens everybody

has the same amount of money to begin

with right so then you start playing

it's basically a random game well some

people start to win a bit and some

people start to lose a bit and then if

you win the probability that you keep

winning starts to increase and if you

lose your vulnerability increases as you

lose and then maybe you've got to say

six people play Monopoly soon one person

has zero

what happens when they have zero they're

out of the game so zero is a weird

number because when you hit zero you're

out of the game so so then if you keep

playing people start to stack up at zero

right what happens at the end of the

game one person has all the property and

all the money and everyone else has none

right that's what happens if you play an

iterated trading game to its final

conclusion and that's part of the the

law in the sense that's underlying this

kind of distribution so it's it's really

it's it's it's not a consequence

necessarily of structural inequality

it's built into the system at a deeper

level than that so you know people talk

about all the time about how unfair it

is that 1% of the population has the

vast amount of the money and 1% of the

1% has most of that money and 1% of the

1% of the 1% has most of that money but

it is a it's a it's an inevitable

conclusion of iterated trading games and

we don't know how to fight it we don't

know how to take from the people who

have and move it to the bottom without

it instantly moving back up to the top

different people maybe but still back up

to the top because even the 1% churns a

lot like I think you have a 10% chance

if I remember correctly you have a 10%

chance of being in the top 1% for at

least one year of your life and a 40%

chance of being in the top 10% for at

least one year in your life that's in

Canada in the US it's less so in Europe

so there's a fair bit of churning at the

top end it's not the same people all the

time who have the money but it is a tiny

fraction of the people all the time who

have all the money

yeah no not usually

I mean they do but it's attenuated

because the people mean if you read the

entire company and put everywhere

somewhere else there's some probability

that some of those people would rise to

the top that weren't at the top before

but in that company that that isn't

generally what happens people get stuck

in their niche and they don't move so

yeah this is you cool you wonder

sometimes well how can companies die so

quickly well they go they go into a

death spiral that's almost impossible

for them to get out of so and it

happened it can happen extraordinarily

quickly this is why you know the typical

fortune 500 company only lasts 30 years

that's it it's not that easy for these

BAM moths to continue existance across

time so and it's because it's really

easy for something to die it's very

unlikely that it will be built it's very

unlikely that it will be successful and

once successful it's very unlikely that

it will continue to duplicate its

success because the underlying landscape

shifts on it and it doesn't know where

to go and that's also partly because

it's not that easy to integrate creative

people into your company right you

certainly don't want them at the bottom

because they're supposed to be people

who are doing what they're told to do so

you filter out a lot of them at the

bottom and then you need them at the top

but they've already been filtered out

and also creative people are troublesome

to work with because they're always how

do you evaluate a creative person you

all you almost can't by definition

because they keep coming up with new

things and you don't have a good

evaluative strategy for a new thing it

wouldn't be new if you had a good

evaluative strategy for it right it

would have to be the member of a class

that you've already encountered

substantially so anyway so the take-home

lesson from this is zero right right and

then that's like that's like a graph of

money monetary distribution as well and

the thing the problem with being at zero

is it very difficult to get out of zero

this is also why people get stuck in

poverty you know you can't get a bank

account if you're if you don't have any

money right you there's a bunch of

things that start to move against you

when you're at zero that you can't shake

it's very difficult to get out of the to

get out of the

the pit here because zero is a kind of

pit