Status: I thought this was a common economics term, but when I google it I get either unrelated or references using it the way I expect but not defining it. It’s a really useful term, so I’m going to attempt to make it a thing.
“Tallest Pygmy Effect” is when you benefit not from absolute skill or value at a thing, but by being better at it than anyone else. For example, the US dollar is not that great a currency and the US economy is not that great an economy. However, the dollar is more stable than other currencies, so it becomes the currency of choice when you want stability. This high volume makes USD more stable and is in general good for the US economy (because e.g. US companies don’t have to take on currency risk when they borrow money).
Tallest pygmy effects are fragile, especially when they are reliant on self-fulfilling prophecies or network effects. If everyone suddenly thought the Euro was the most stable currency, the resulting switch would destabilize the dollar and hurt both its value and the US economy as a whole.
It's not clear to me whether you intend this term to include cases where not all contenders are bad. For instance, if you think the US dollar is actually a pretty good currency, is it still the "tallest pygmy"? If so, then the name is misleading because of the connotations of "pygmy". If not, then you're unnecessarily separating cases where some contenders are "good" from cases where none are, even though the same mechanism (the best one is chosen) applies in all cases, and even though the line defining "good" is usually arbitrary.
Because of this, I don't think the term as it stands is particular useful, and would not use it.
No, because people who aren't specifically told what the term means will have the same confusion I did. Perhaps this could be solved by using another phrase. However, I'm not sure that the concept itself breaks reality down at the joints, for two reasons.
a) The idea that an "absolute value" can be objectively low or high is a tempting trap, but epistemologically incorrect. Let's say your absolute value is currency quality, and the US dollar is the best currency. I could say "man, there are so many ways the US dollar could be improved, it's a terrible curre... (read more)