Chapter 5
The Buck Starts Here
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
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Millions of pounds were withdrawn causing a financial crisis that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
Bank Runs
Individual rational behavior led to communally irrational behavior.
Photo
PhotobybyLilly,
Lilly,Flickr
Flickr
Social Networks can make the problem worse.
A few panicked people can influence many others, as panic spreads.
Tracking the Spread of Information
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.
Photo by WheresGeorge.com
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
Random Walk and Lévy Flight
• 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.”
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 SARS might spread.
Photo by Christian Keenan
Moody Markets
• These “paths” can affect the way the cost of a good changes.
• Cost depends on supply and demand.
Demand:
• Where does “demand” come from?
Social networks, in part.
Supply:
Photo by molotalk and Yoshimai, Flickr
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
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!
In an efficient market, people decide
concurrently and independently
But in social networks, people decide
sequentially and interdependently.
Photo by Inkyhack, Flickr
The Strength of Weak Ties
Strong ties affect people more deeply.
Weak ties often link more people.
Photo by johntrainor, Flickr
“Bridge” members have many weak ties to members outside their
group.
The Strength of Weak Ties
People need both strong and weak ties in order to network
successfully.
The same is true for companies.
Photos by Steve Polyak and Wesley Fryer
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!
Photo by Brian Lane Winfield Moore
Power in Numbers
Why not go it alone?
Muhammad Yunus earned a Nobel Peace Prize in 2006 for
inventing micro-finance banking.
Small loans were
given to groups
(usually women)
in impoverished
countries to start
small businesses
or projects.
Photo by GarmeenBank.com
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