Vol 33 – Transgression, Synchronisation, and the Renewal of Edge

One of the more thought-provoking frames I came across recently in a lecture on game theory was the idea that “the way to win in the world is through transgression, as this leads to synchronisation.” At first, the phrasing sounds counterintuitive. But unpacking it reveals a powerful lens for both businesses and investors.

Transgression: Breaking the Expected Playbook

In game theory, a transgression is not about cheating — it is about deviating from the accepted rules of the game. Every industry or market tends to converge on a set of norms: pricing conventions, business models, or risk frameworks. A transgressive player questions these norms and dares to move outside them.

• Vanguard’s decision to launch near-zero-cost index funds in the 1970s was a transgression against the “rational” norm of paying for active management. (Who would have thought that investors would switch to boring mimics)
• Robinhood and Zerodha made the same move in broking, pushing commissions to zero.

Synchronisation: The New Equilibrium

When a transgressive move resonates with deeper structural incentives (lower cost, higher convenience, better efficiency), competitors and customers quickly synchronise around it. What was once radical becomes industry standard.

• Today, over 50% of US equity AUM sits in passive funds.
• In India, almost every broker now operates at or near zero commission.

This is where the paradox lies: once the world synchronises, the original edge is gone. Alpha becomes beta.

The Moat in the Middle

The winners are not just those who transgress, but those who lock in advantages while the market catches up.

• Vanguard’s moat became its scale, trust, and ownership structure.
• Zerodha built brand, technology, and ecosystem stickiness even as the industry converged to its pricing model.

This phase is where leaders convert an innovation into something defensible.

Renewal: The Next Transgression

Long-term winners don’t stop after their first transgression. They institutionalise a culture of asking: “Where is the next boundary to cross?”

• Amazon went from online books → cloud → advertising → AI.
• In investing, models have evolved from valuation screens → factor investing → machine learning → alternative data.

The edge lies not in a single clever move, but in the habit of renewing transgression before synchronisation fully matures.

Implication for Investors

As analysts and fund managers, it is useful to frame businesses along this cycle:

1. Where are they transgressing?
2. How quickly is the market synchronising?
3. What moat are they building in the interim?
4. Do they have the DNA to transgress again?

Instead of only asking “what is their moat?”, we should also ask: “Where are they in the transgression–synchronisation cycle?”

Public markets pay up for moats but punish companies to transgress. Here in would occur valuation inefficiencies.

References / Further Reading

• John Nash’s work on equilibria in games (Nobel Prize lecture, 1994)
• Michael Porter on competitive strategy (Harvard Business Review, 1979; “What is Strategy?” 1996)
• Case studies: Vanguard Index Fund history (Bogle, Common Sense on Mutual Funds), Robinhood/Zerodha industry impact

At  Itus, we see this as a useful lens not only for evaluating companies but also for thinking about our own process — the renewal of edge through disciplined transgression.