Given our recent in class discussion of social network effects and the similarities of these topics with my interests as an ISST major, I absolutely have to comment on the post made by my classmate earlier today entitled “Information Cascades and Pop Culture” and more specifically the referenced NY Times article from Dunken J. Watt’s entitled “Is Justin Timberlake a Product of Cumulative Advantage?” My interest in this topic begins with the belief that the concept of “Cumulative Advantage” and many other social concepts discussed in this article can be explained more precisely using the ideas and conceptual framework we have been laying out in our Networks lectures. As I began reading Dunken’s article I was became increasing anxious to here the ‘network’ aspect of this social commentary. What I eventually realized is that the sociologist Dunken J. Watt’s is giving a very insightful description of what we would call “network effects” but from the perspective of traditional sociology. In fact the author doesn’t even discuss the concept of a “network” until near the articles end and when he finally started to form conceptual ties to economics, information theory, and network theory that I was so anxiously awaiting I honestly felt like it was not only “off” but at the very least incomplete. (I only became aware of the author’s prestige after coming to this general sentiment so please humor me if you can).

Dunken begins a paragraph on the second page by paralleling the idea of “cumulative advantage” with emerging network theories in economics.

“Economists like Brian Arthur and Paul David have long argued that similar mechanisms affect the competition between technologies (like operating systems or fax machines) that display what are called “network effects,” meaning that the attractiveness of a technology increases with the number of people using it.”

The economist that Dunken is referring to are responsible for the modern theory of increasing returns, also called positive feedback depending on your department/textbook. Positive Feedback is known as a network “Externality” and is defined by wikipedia an “An impact (positive or negative) on any party not involved in a given economic transaction.”

In the sense of economics, we have seen that positive & negative externalities can arise when individuals are not making their value assumptions independently. From a network perspective we interpret the concept of externalities slightly differently by stating that the value of a connecting to a network depends on the number of other people already connected to it (Varian, 180). However this is not a parallel to the “cumulative advantage” concept as Dunken states but rather fundamentally the same mechanism or “network effect”. To make this point more concrete I’ll use the fax machine example previously mentioned. The nodes in this network are the fax machines and the edges represent the connections (and hence the ability to exchange information) between them. The “total value” of the network will then be increased with the addition of a each new fax machine to the network- as one would generally expect, but more importantly the marginal value of this additional fax is also increasing! This increase in marginal value property is another form of the the externality known as positive feedback and is often called “increasing returns to scale” in most economic settings. What I have attempted to show with this comparison of network and economic “externalities” is that if we think of information exchange as an economic transaction and vice versa, we can develop more than just “parallels” between these network mechanism but also fundamental governing principles and mathematical formulations. What I feel this author failed to do was recognize that the seemingly complex and ambiguous mechanisms driving our cultural development & societal evolution can be accredited to the same positive feedback externalities that took America’s old industrial economy from an “economies of scale” to “economies of networks.” we have in the information industry (Varian, Ch.7). But dunken seemed to downplay the importance of networks in his social analysis by implying that network effects were themselves not enough to explain the unforeseen shifts in consumer demand (what I believe modern economics may call a “tippy” market.)

“even in markets that don’t exhibit obvious network effects (like markets for low-carb or organically produced food, fuel-efficient vehicles or alternative energy technologies), sudden shifts in consumer demand can still arise, persist and then shift again. These shifts often come as surprises but are soon explained away as mere reflections of changing public sentiments. Yet while in some sense these markets do reflect what people want, that is true only of what they want right now. If markets not only reveal our preferences but also modify them, then the relation between what we want now and what we wanted before — or what we will want in the future — becomes deeply ambiguous.”-Dunken

I would say there are most definitely network effects in the form of externalities exhibited in the markets for low-carb food and alternative energy. And although you may not find these network effects obvious, that really doesn’t change the fact that the theories that we have applied to our information and economic networks has also predicted many of the empirical observations of our social network and explains why stock prices are just as hard to predict as the next Justin Timberlake or Tickle Me Elmo—which are in ways “cultural stock” if we think about those products using the same conceptual framework we use to define economic markets.

Many subtle and non-intuitive events can happen in these network markets and I believe this is what Dunken meant by saying that these markets are “deeply ambiguous.” Perhaps a better understanding of this market structure is given by Varian in Chapter 7 of Information Rules, “The beautiful if frightening implication [is that] success and failure are driven as much by consumer expectations and luck as by the underlying value of the product. A nudge in the right direction, at the right time, can make all the difference.” This is also what I believe to be one of the most compelling arguments/insights from Malcom Gladwell’s “The Tipping Point.” However Dunken seems to misinterpret these new market principles when he makes the statement, “Yet while in some sense these markets do reflect what people want, that is true only of what they want right now.” –But isn’t this the very assumption of the most basic markets we study in economics? Given what we’ve learned about our society and the social *networks* that arise across all humanity, shouldn’t we expect this “cultural” marketplace to operate under many of the same principles as a network of transactions on wallstreet?

I believe the missing conceptual component that merges Dunken’s sociology perspective of social networks with that of modern economic & network theories is that information exchange is as much an economic transaction in the market for consumer products as the exchanging of cash for corporate stocks is on the stock market. The ‘two-way’ nature of economy that has grown out of the information age is such that markets not only reveal our preferences but modify them as well. And although Dunken seems to be focused on the ambiguity that arises from this fact, the end result of this so called ‘ambiguity’ is a culture that can rapidly evolve and progress, where value can be created not only intrinsically but extrinsically as well. This hard to quantify “extrinsic value” is what I believe contributes to the volatility and “tippyness” of network markets and is the reason for the deserved skepticism Duncan calls for at the end of his editorial:

“That doesn’t mean we should stop trying to anticipate the future, any more than we should stop trying to make sense of the past. But it does mean that we should treat both the predictions and the explanations we are served — whether about the next hit single, the next great company or even the next war — with the skepticism they deserve.”- Dunken

However in this giant “conglomeration network market” of economics, society, and information that I envision, our dear friend skepticism is merely a semiotic resource for expressing the value of the imperfect information associated with randomness that is inherent to the market. What I believe this means is that the need for skepticism is controlled by the same “ambiguous” demand functions that initially sparked Duncan’s call for skepticism which may turn his closing argument into a rather moot point. What do you think?