Discussion Question 2
POLI 100F Lecture 7: Social Networks and Economics
Gregoire Phillips
11/17/2020
Overview
Announcements
Social Networks in Economics
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Announcements
Discussion Questions #2 are now posted on Canvas, and due by next Tuesday at 11:59 PM PST
Final Proposal Check-in will be posted by Friday and due Tuesday, December 1st at 11:59 PM (PST)
Will ask for core components of your project
Research Question
Thesis
Theory
(Early idea of ) Hypotheses and Research Design (will talk about in lecture next Tuesday)
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Bank Runs
Northern Rock Bank
In September of 2007, Northern Rock bank closed its doors for one day and asked the Bank of England to cover its deposits.
The brief scare started a chain reaction.
Long lines formed outside many branches as people attempted to withdraw their money.
Photo by Dominic, Flickr
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Bank Runs
Withdrawers knew their actions were unreasonable.
Why did so many people show up and stand in line for hours if they thought their money really was safe?
Social Networks played a large role.
People who had heard that friends were going were more likely to join in the frenzy.
These bank runs are examples of hyperdyadic spread.
Millions of pounds were withdrawn causing a financial crisis that effected not only Northern Rock Bank but the entire banking and investing community.
Photo by Christopher Elison
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Photo by Lilly, Flickr
Individual rational behavior led to communally irrational behavior.
Bank Runs
Social Networks can make the problem worse.
A few panicked people can influence many others, as panic spreads.
Photo by Lilly, Flickr
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Tracking the Spread of Information
Photo by WheresGeorge.com
What is the path through a network that things take when they spread?
A good alternative to tracking people is to track the flow of money.
WheresGeorge.com was created to track money.
The path of a bill can be traced if enough people input the same bill into the system.
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Tracking the Spread of Information
Applying the same principle elsewhere can help us understand other types of communication within social networks.
Researchers study the paths of money, diseases, cell phone calls, emails, and anything else that is traceable.
Photos by Ed Yourdon
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A random walk is a path in which movements are in a random direction and all the steps are equal size.
A Lévy Flight is a path in which movements are in a random direction but the distance traveled varies with each step. Sometimes, there is a very long step or “flight.”
Random Walk and Lévy Flight
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Tracking the Spread of Information
Researchers found that information moving through a network follow a path between a random walk and Lévy Flight.
Tangible applications include better information about how a disease like COVID-19 might spread.
Photo by Christian Keenan
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Moody Markets
These “paths” can affect the way the cost of a good changes.
Cost depends on supply and demand.
Where does “demand” come from?
Social networks, in part.
Photo by molotalk and Yoshimai, Flickr
Supply:
Demand:
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Moody Markets
People set new prices by evaluating what others want.
As a result, they are influenced by past prices.
This can cause prices to skyrocket (creating bubbles) or to plunge (creating crashes).
Photo by runneralan2004, Flickr
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Moody Markets
How many jellybeans?
The average of a group’s guess can be accurate if they guess simultaneously or without knowledge of others’ guesses.
But when they know about previous guesses, the group does not get as close!
Photo by Inkyhack, Flickr
In an efficient market, people decide
concurrently and independently
But in social networks, people decide
sequentially and interdependently.
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The Strength of Weak Ties
Recall Granovetter
Strong ties affect people more deeply.
Weak ties often link more people.
“Bridge” members have many weak ties to members outside their group.
Photo by johntrainor, Flickr
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People need both strong and weak ties in order to network successfully.
The same is true for companies. More likely to be hired by weak tie.
Photos by Steve Polyak and Wesley Fryer
The Strength of Weak Ties
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The Strength of Weak Ties
Mix of strong ties to previous collaborators and weak ties for fresh faces balances rapport, organization, and creative ability.
Broadway shows that follow this model are more likely to succeed! Why? Low average path rate and high transitivity
Photo by Brian Lane Winfield Moore
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Power in Numbers
Why not go it alone?
Muhammad Yunus earned a Nobel Peace Prize in 2006 for inventing micro-finance banking.
Photo by GarmeenBank.com
Small loans were given to groups (usually women) in impoverished countries to start small businesses or projects.
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Power in Numbers
Social ties, rather than money, were used as collateral and could be used to guarantee a loan.
Yunus founded the Grameen Bank which now fosters social networks which
optimize trust
connect groups through weaker ties
help find creative solutions through connections
Photo by Inkyhack, Flickr
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Networks and Inequality
Frontier of field in applying networks to economics: social networks and economic inequality
Phenomena like employment (and unemployment) may be facilitated through informational networks and exposure to clusters of like-skilled or like-privileged people
If economic opportunities depend on who you know, how do other social divisions affect these opportunities based on place in social networks?
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