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The network effect

A subject of great interest to me of late is decision making. From the outside it may seem like a discussion of this subject could possibly be bland and lack anything valuable enough to be used in the fast paced, information abundant world of today. But contrary to this belief, once one delves into the depths of decision making, it becomes clear that  it actually holds some of the most fascinating ideas of our time.

As discussed in a previous post, we are not as rational as initially thought. The truth is that we actually have many cognitive flaws that make us prone to delusion and a warped sense of reality. This makes us far more irrational than the standard view of economics would like us to believe (for further discussion see: Accepting our irrationality)

But understanding our cognitive flaws and limitations is only half the picture. In order to get the full picture of our irrationality, we need to understand the external pressures that influence our decision making. This is done by looking at the environment/network surrounding the decision maker. And as you will see, the effects of networks have a much larger influence than what was initially believed.

lazioriot1_468x300 A great example of how our decision making is affected by networks, comes from Paul Ormerod’s book “Positive Linking”.

What happened was that after a large football match in the UK, a mob of supporters had gathered outside the stadium. The group were beginning to become a bit of a nuisance so the police decided to try a host of different incentives hoping that they would cause dispersion. Eventually after a number of tactics failed an impatient policeman decided to shoot his gun up into the air, thinking that the sound of gun fire would strike fear into the minds of the group and send them running. The effect however was the complete opposite.

The shot caused a few members of the mob to react violently towards the policeman and their actions caused a knock on effect within the network, which resulted in the entire mob getting into a full on, violent battle with the police force. The irrational reaction of a few lead to the behaviour spreading quickly throughout the group, resulting in a situation which most people involved would have preferred to avoid.

An experiment to show how influential network effects can be is shown in the short video below.

A more contemporary example of how networks affect our decision making (one I was especially intrigued by because of my love for music) was also discussed in Ormerod’s book. Here is what happened.

An experiment was done to try and understand the current music culture and how it is influenced by online networks. During a first test, respondents had to listen to 30 songs. The only thing given to them, on the screen, well listening to the songs was to option to download the song if they liked it. The results of this first test were mixed. There was no clear favourite or group of outstandingly popular songs.

During the second test, different respondents listened to the same 30 songs, but this time the amount of downloads per a song was given to respondents during each song. This test resulted in an out and out favourite and a group of songs that got no downloads at all. So in this test we see the same group of songs being listened to as in the first test. But on this occasion, the popularity of songs was severely imbalanced.

The fact that respondents now had information on previous respondent’s decisions (in the form of number of downloads) had a profound impact on whether or not respondents decided to download a given song!

The third test (and probably the most significant one of all) gave the same group of songs to respondents, just as before. The only difference this time was than instead of giving the actual number of downloads, they gave a false, made up number of downloads for every song. The respondents of course did not know that the validity of this information had been manipulated.

The results of this final test showed that the song with the highest number of downloads (fake information) astonishingly proved to be the most popular with the respondents.

Thus showing that the most powerful influence over them was not the intrinsic qualities of the actual songs, but rather what was perceived to be popular within the given network!

All the above mentioned examples help to point out a deep insight regarding the nature of our decision making, that we commonly base our decisions on the decisions of people with our network. We frequently lack the required information and/or computational ability (or perceived ability) to make a good decision and so we feel that the best thing to do is to copy or imitate the most common decisions of those within a related network.

This is the reason why there are fashion trends, sport trends, why there are only a few very famous pop and movie stars. Its one of the major reasons why we have recessions, depressions and economic booms. It is the reason why viral videos exist and why a song can shoot to the top of the charts before plummeting within a matter of days. Its like we are constantly chasing bandwagons with headless drivers, and no sooner than we hop on, do we realise the need to be on another. And in an increasingly globalised world, where communication technologies are making us more widely and effectively connected, this behaviour is only going to become more visible.

We would like to believe that we like something or someone because of the intrinsic qualities, but in reality, two products can be identical but by luck one gets into the right network, becomes successful and then feedback loops form which make the popularity of the product grow exponentially. Success breeds success.

This is the nature of popular culture. It plays on an instinctual human characteristic that has been with us since our primordial times. We are and have always been social animals, and the best way for us to survive has never been to gather information and use it to try compute a rational decision. We did not have the time nor the cognitive capabilities to do so. Rather, the safest, most successful option has always been to do what everyone else in the group/tribe is doing.

An interesting activity to take from this understanding is to step back and consider the social pressures/network effects acting on you whenever you make a decision. Or once you have made a decision, think about how networks effects influenced the decision you have  made. I’m sure you will realise that your social environment has a much larger impact on your decision making than you initially thought.

My hope is that this will help to filter out the network effects which are causing you to make decisions that are detrimental to your development and happiness as well as to those within your surrounding networks.

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One Comment Post a comment
  1. ‘constantly chasing bandwagons with headless drivers’, Quality! Nice Dave

    July 19, 2013

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