Kaushik Basu, in his paper “Teacher Truancy in India – The Role of Culture, Norms and Economic Incentives”, claims that economists often ignore the role of social norms and culture in economic analysis even though social variables, in many cases, play a critical role in determining economic behavior. He discusses the case of India, which despite experiencing tremendous economic growth in recent times, still suffers from corruption, “a grindingly slow and callous” bureaucracy, and glaring inefficiencies. In particular, he analyzes the severe problem of teacher absenteeism in government-run schools and claims that social variables may have a critical role here; even though economic incentives are largely similar across different states in India, there is a large difference in absenteeism rates ranging from a best of 14.6% to a worst of 41.9%.

The existence and persistence of such social norms, such as teachers playing truant, can be explained in the language of network effects. Basu introduces a model where the payoff to a teacher playing truant is determined in part by the social stigma associated with being truant. Each individual, on playing truant, experiences a negative payoff effect due to this social stigma; the magnitude of this stigma is a decreasing function in the number of individuals playing truant in society. In other words, if many people are playing truant, then each individual has greater incentive to play truant. This setup is qualitatively identical to our study of network effects in class and therefore similar results hold.

Multiple equilibria n* can exist in this economy, where n* is the number of individuals playing truant. Suppose there are 3 equilibria n1, n2, n3 such that n3 > n2 > n1; so, n1 is the most desirable. From our study of network effects, it is now easy to see how one economy could be caught in an undesirable equilibrium n3, whereas another economy with similar economic incentives could be at a more desirable equilibrium n1; this is the concept of “path dependence” that we have discussed. This “path dependence” suggests an economy in a “bad” equilibrium does not necessarily reflect the innate attitude of the individuals comprising the community – the very same community could persist in a “good” equilibrium. As Basu points out, this suggests that no permanent measures need to be taken to fix the problem. Implementing temporary incentives (such as greater punishment for truancy) can move this economy to a good equilibrium; however, after the economy has settled into a new equilibrium (say n1), these incentives may be removed and the economy still persists at this “good” equilibrium. Basu discusses variations in the model where the magnitude of stigma to an individual depends not on the total number of people playing truant in the population but on the number of people who play truant in the individual’s community; there is again a direct parallel with the variations discussed in class where an individual’s payoffs are affected only by the actions of his neighbors/community (such as choosing an IM system) as opposed to population-wide effects (such as choosing an operating system).

Mozilla To Build Social Networking Into Firefox

In early April 2007, sites began popping up all over the internet addressing one of Mozilla’s new endeavors with Firefox: The Coop. The Coop, which will potentially be Firefox’s built-in social network tool, is currently a project in Mozilla Labs. According to its Mozilla wiki, The Coop’s “design was influenced by Chris Messina’s mock up for the unimplemented “People in the Browser” feature, with a horizontal bar containing avatars for a user’s friends, and icons overlaid on those avatars to indicate the presence of new content.”

So much time is spent on social networking sites such as Facebook or MySpace that it seems as though The Coop is the next logical step in the ever-evolving world of online social networking. The implementation of such an integrated system would allow socialites to always be viewing their social networks while looking at other websites without having to open more than one internet browser window. Convenient? Perhaps. Could this be too much? Could too much, constant exposure to online social networks cause the ties they created to weaken as a result?

The Coop’s first step in implementation would be as an add-on feature in Firefox. Online discussions have begun on the subject, and some argue that it should remain as an add-on rather than become a built-in feature. These individuals ask whether or not the internet browser should be “married” to the social network. Implementation into the browser itself has both pros and cons. As a built-in feature, Firefox might lose some fans, while gaining others. As an optional add-on, penetration into the already-existing Firefox user base might take longer, but at the same time, will not alienate those current users who don’t like the idea.

As we have seen with the various initial reactions to the implementation of Facebook’s News Feeds, only time can tell the true impact that The Coop will have on the web. Also, initial reactions do not always dictate the success or failure of a product. As time went on, users began to embrace Facebook’s News Feeds, and cannot remember Facebook without it. If The Coop does get officially released by Mozilla, its success will be dictated by the creation of new ties between Firefox users, both old and new. The large social network between current Firefox users might even be enough to forecast Firefox’s potential growth in internet browser market share.

If implemented, it will be interesting to see the social network that The Coop will create. It will provide a playground for Firefox users to interact on a level previously unavailable to them. Since Firefox has a strong following as a browser, it has the potential to create a strong and powerful online social network.

http://www.techcrunch.com/2007/04/03/mozilla-to-build-social-features-into-firefox-bad-news-for-flock/

http://www2004.org/proceedings/docs/1p491.pdf

While searching for a relevant topic to do my last blog on, I came across this paper which couldn’t be any more applicable to class discussion and web blogging. Several researchers from IBM and MIT decided to develop an algorithm to model the dynamics of information diffusion through blogging. In their proposal, they discussed two types of blogging:

1) “chatter” or an ongoing discussion usually characterized by the author of the blog

2) “spikes” or a short term discussion usually stimulated by outside events found in the news, media, etc.

They also characterized four types of individuals who blog based on their posting behavior over a given amount of time. With these characteristics in mind, Gruhl and his group were able to construct a model, drawing upon similarities between the spread of information in a network and the spread of disease among a population. However, they found that a disease propogation model is not appropriate in information diffusion through blogspace because many topics can propagate without becoming “epidemic”.

The researchers go on to discuss other ways to analyze the situation, using ideas that included game theory approach, threshold models, power law networks - many topics discussed in class. Eventually they settle on using an independent cascade model for their study adding in a few extensions which account for behavior observed in online blogging. These include span of attention (the fact that people won’t read more than a few blogs at a time), stickiness (a particular topic arousing more interest than another), and multiple posts (authors publishing several posts on the same topic).

Being able to effectively model the nature of online blogging can help blogging sites (news sites in particular) filter out unrelated “spikes” in the posts so that crucial news blogs related to real-world events can be found more readily. These blog models can also enable companies to perform self-assessments that would otherwise be too costly to do.

http://stke.sciencemag.org/cgi/content/full/sci;303/5659/793

In the article, “Evolutionary Dynamics of Biological Games”, Martin A. Nowak and Karl Sigmund discuss the benefits of evolutionary game theory in modeling and understanding the evolution of phenotypes. Classical game theory, in the sense of networks attempting to approach a Nash equilibrium, does not fully explain newly observed population trends in biological studies, “where the long-term outcome is not a Nash equilibrium but endless regular or irregular oscillations.” Nowak and Sigmund suggest that previous ideologies be expanded to include concepts like the “unbeatable strategy” and “evolutionary stability”, dependent on the population dynamics.

To explain the foundation of evolutionary games, two specimen of type A and B are considered under the following setup, “Dominance holds if A can invade B and B cannot invade A (or vice versa), coexistence holds if A can invade B and B can invade A, and bistability holds if neither type can invade the other.” This scenario introduces the “core of evolutionary game theory”- invasibility. Supposing A is a resident population and B is an invading population, the outcome of the interaction between A and B will depend on the strategies, or in this case a Darwinian definition of “fitness”, of the two participating populations. While one might assume that the system will tend toward a Nash equilibrium, the concept of evolutionary stability must also be considered. An evolutionary stable outcome can be reached in two ways: “the mutant must either be dominated or else form a bistable pair with the resident strategy.” The language used in the case of the mutant being dominated suggests a Nash equilibrium; the mutant plays its best response to the resident’s even better response, thus it is a Nash equilibrium where the resident holds a dominant strategy. We see here that a Nash equilibrium can also be evolutionary stable.

However, a Nash equilibrium is not always evolutionary stable. We discussed this concept in class using a two-player, two-strategy game- the hawk-dove game. We generalized this game from two animals choosing from being aggressive or passive to Animal A and Animal B choosing from two strategies X and Y, receiving different payoffs depending on what the other animal chose. An X encountering an X received a, an X encountering a Y received b, a Y encountering an X received c, and a Y encountering a Y received d. In order for X to be evolutionarily stable, a must be greater than c, or if a is equal to c, b must be greater than d. This could easily not be the case. For example, X could be a best response to X, but Y might do as well as an X when it encounters an X and also does better than X when it meets another Y. Thus we see that while X is a best response to itself, it is not the only best response, therefore it is not evolutionarily stable.

It is evident that understanding the relationship between Nash equilibria and evolutionary stability is essential in “emerging fields as diverse as metabolic control networks within cells and evolutionary psychology.” Awareness of the applications of game theory to the biological world will facilitate the development of evolutionary models. Evolutionary game theory expands the Darwinian notion of equilibrium to include the chaos and variability inherent in life.

http://blog.wired.com/games/2007/04/wii_and_the_tip.html

According to a blogger from Wired, Nintendo used a marketing strategy discussed in Malcom Gladwell’s novel, The Tipping Point. Shortly before the launch of the Nintendo Wii, Nintendo invited gamers to “Ambassador Parties” where gamers brought about twenty of their friends to try out the Wii. As the word “ambassador” may suggest, gamers were not invited by random; these invitations were extended to influential bloggers and active participants in gaming discussions.

Since gamers interact and communicate so often on the web, Nintendo probably figured it would behoove them to have the most influential of these start propagating their product, hopefully starting a cascade of Wii enthusiasts. I think by employing this strategy, Nintendo made use of a few of the phenomena covered in class. Obviously, it wanted to create an information cascade and get a head start on the PS3, which was to be released later than the Wii. By getting as many people to promote the Wii, it becomes easier to further promote because newcomers to the market will see how many people have already bought the Wii and buy one for themselves as well. This also applies to the late adaptors, who will purchase only after seeing that many others have already purchased the system. Furthermore, Nintendo probably also wanted to take advantage of network effects. Nobody wants a gaming system no one else has nor is familiar with. Because a system like the Wii is heavily dependent on people playing together in a social setting, it is important for Nintendo to exploit both the tightly knitted social networks gamers have among friends and the social networks gamers have on the net and blogosphere.

The article entitled “Santa Claus, the Easter Bunny, and Six Degrees of Separation” by Ivan Misner can be found at the following site: http://www.healthywealthynwise.com/article.asp?Article=5203

In this article, Ivan Misner argues that the notion of “Six Degrees of Separation” in which we are all connected to each other by at most six intermediary links is a myth…to a certain extent. He cites Stanley Milgram’s series of “small world” experiments as “revolutionary” in that they sparked new discussion and understanding in the field of networks and social analysis. However, many people have misconstrued the findings of Milgram’s studies over the years.

As we learned from class, even in Milgram’s most successful study involving the sending of letters to a man in Massachusetts, he achieved a success rate of only 29%. In this fraction, the average number of steps from the starter to the target was about 6. In another of his “small world” experiments, only 5% of participants completed the chain successfully. From the series of studies performed by Milgram and others, it was generally concluded and accepted that everyone in the entire world is connected by about six degrees of separation.

Misner states two reasons why he has a problem with this “urban legend.” First, he says that the myth creates complacency. “The thought that everyone is absolutely connected to everyone else on the planet by six degrees gives some people a false sense of expectation and thus lulls them into a sense that the connection is bound to happen sooner or later, no matter what they do.” Secondly, the studies indicate that being a part of the fraction of people who can be connected by Six Degrees of Separation is a “skill that can be acquired. With reading, training, and coaching, people can develop their networking skills, increase their connections, and become part of the roughly 29% of people that are, in fact, separated from the rest of the world by only six degrees.”

Misner’s point is that we are not “all” connected by Six Degrees of Separation; rather there is a relatively small fraction of us who are. In fact, as we know, Milgram’s findings support this claim. However, it is entirely possible to be a part of that special fraction through education, practice, and training. Networking is a skill that has great power and potential. By understanding and developing that skill, people can set themselves apart from their competition in whatever they may do.

Having just discussed the Six Degrees of Separation concept in class this past week, I believe that this article sparks an interesting thought by giving us a critical viewpoint on the topic. We must remember that not everyone on this earth is connected by six links, but there exists a smart and skilled group who are.

http://www.emarketer.com/Article.aspx?1004840

For the past five to ten years, online social networking sites for career development such as Monster and LinkedIn have been growing and developing.  In the past year, LinkedIn has grown in members by 89% to over 8 million members.  This is a huge increase and suggests the usefulness of online social networking sites for career development.

In particular, it seems that younger workers are especially attracted to these career development sites.  With many of them familiar with the technology, it makes searching for jobs much easier.  Although, workers of all ages use these sites, younger workers find these online social networking sites for career development especially useful because the sites provide “career information that is pre-qualified by its users and, therefore, credible,” which could be difficult information to find if new to job searching.

Michael Lewis has sold many thousands of books in the past four years by utilizing a Malcolm Gladwell-like perspective and writing style in analyzing the sporting world. His 2003 book Moneyball is famous for its examination of baseball’s Oakland A’s; despite having one of the lowest payrolls in all of Major League Baseball, the A’s manage to win the AL West and make the playoffs most every year. Lewis attributes this success to the A’s brilliant General Manager, Billy Beane, and particularly to his staff’s use of statistical methods in choosing which players to place on their roster each spring.

The A’s went against conventional wisdom in choosing which statistics to value in prospective players. Scouts have traditionally valued stats like batting average, RBI’s, and home runs. Beane and his team–who are usually armed with computers and complex formulas–value decidedly different statistics; on base percentage instead of batting average, for example. This new wave of baseball minds also chooses to discredit stats like RBI’s and runs, which they characterize as incidental to the in-game situation, not one player’s individual skill, talent, or performance. Many in baseball mocked Beane and the deals he made, but as the A’s continued to win, personnel with other teams began to accept some of his methods and employ them in composing their own squads. The publication of Moneyball blew the entire movement wide open, and it is now generally accepted as truth.

More recently, Lewis analyzed the National Football League, and the curious fact that left tackles are the second-highest paid position, on average, throughout the league. Left tackles don’t really accumulate statistics at the same rate that quarterbacks (completions, touchdown passes), running backs (rushing yards, touchdown carries), or most every other position does, so why are they paid so well for their service. Lewis argues that, as the game evolved in the 1970s and 1980s, the quarterback became the most important player on the field; as this became true, attacking the quarterback became a priority for every team’s defense; and as pass rushing became a huge part of the game, protecting the quarterback became one of the most important tasks an offense needed to accomplish. The left tackle, who is responsible for protecting a right-handed quarterback’s “blind side,” thus became a very important commodity. Hence, the book’s title: The Blind Side. The left tackle had traditionally very poorly paid, but as the game evolved and his importance became clear, the position has increased in stature and, most notably, compensation.

In a recent column for Yahoo! Finance, Lewis writes about yet another innovative concept: a stock market for trading athletes. The start-up responsible for this idea, A.S.A. Sports Exchange, is currently developing this market. Lewis describes the basic structure for the market as cleanly as possible:

“The athlete would sell 20 percent of all future on-field or on-court earnings to a trust, which would, in turn, sell securities to the public.”

As Lewis points out, some critics believe this is merely legalized gambling. A.S.A. Sports Exchange defends itself by saying that, after making an emotional investment in a team or particular player for so long, fans should be permitted to make a financial investment as well. A kind of “shadow market” already exists for players and teams, though; millions of people participate in fantasy leagues each year, and billions is spent gambling on athletic events each year, too.

Lewis makes an interesting argument regarding the similarities between the stock market and pro athletes potential for success. The stock market is essentially tasked with “assigning prices to assets with uncertain futures”; how is this any different from the Oakland Raiders deciding who to select with the first pick in the NFL draft this Saturday?

Another company attempting to enter this market is Protrade, which allows fans and users to trade athletes like commodities. Lewis uses the example of Peyton Manning to demonstrate how this process works:

“[Users] can watch their Peyton Manning stock rise and fall from play to play during the season and see what happens if he’s traded to another team in the off-season. The exchange also allows them to short the jock’s stock—to profit from his poor performance. Each stock pays dividends, which gain in value based on the athlete’s on-field performance.”

While much of this information relates to earlier aspects of the course regarding financial markets, I believe that many things we have recently learned in class apply here as well. If a player has a great opening day, and you see that many people have been “picking up” his stock, just like one would pick him up off of the waiver wire in a fantasy league, an information cascade will develop. If an athlete has statistics that are impressive enough for an arbitrary period of time, and if ESPN does a 60-second feature on his recent success, what other motivation do you need to pick up a few shares? His prospects for the future seem undoubtedly bright, and besides, with baseball games six or seven days a week and football games once a week, you have more information–and more current information–to work with in making your financial decisions. With the stock market, you have to wait for quarterly reports and sift through the morning paper to know how your mutual fund is doing, but with athletes, it’s all on ESPN every night! How will this idea not be successful?

Speaking of ESPN, this presents an interesting ethical dilemma. Reporters are well known for being selective in their coverage of many things in sports–I’m thinking of injuries, specifically. Sometimes it’s a deliberate campaign of misinformation, waged by a coach or front office that doesn’t want the opponent to know who is hurt, but oftentimes–and this is less true now that it was before ESPN and its 24-7 branding, admittedly–sports journalists will fail to report significant injuries or other information. A recent example of this is the revelation, after his team’s elimination, that phenom Sidney Crosby of the Pittsburgh Penguins played with a broken foot for most of the first round of the NHL playoffs. This is a dilemma for ESPN because, if their reporters and staff have the best information, and have to decide what should be conveyed to the public, how do they do this accurately and honestly when a large amount of money could be at stake? ESPN, like it or not, holds a virtual monopoly on sports coverage, particularly on television, and I don’t really trust their people to give me the facts anymore. If the stock market becomes part of this consideration, however, I trust them even less–they would be a manipulative “trader” in this network of information, in my opinion, and hold too much power in the market–unless their monopoly on television coverage is broken, this will be a huge problem for this idea.

The idea of “perfect matching” becomes more difficult to assess, too; no longer can we rely simply on numbers and statistics to match up buyers and sellers. Now, allegiances and favorites come into play. No matter how perfect the match, no matter how bright a player’s future, does a Red Sox fan really want to own shares of Derek Jeter? Or a Yankees fan shares of David Ortiz? (As a Royals fan, I don’t want shares of either of those bums, but that’s beside the point).

If either of these start-ups is successful in its efforts to launch a “Jock Exchange,” as Lewis calls it, or if any other company is successful for that matter, the sports world will undoubtedly be revolutionized. Fans will be able to trade stocks of their favorite players while picking up the occasional rival who has had a particularly good month. While season tickets, paraphernalia, and other forms of merchandise certainly constitute a financial stake in one’s team, this financial interest will increase exponentially if one can invest in players like stocks. For those who object on moral grounds, Lewis states that:

“It is indeed gambling, but then, so is the New York Stock Exchange.”

One of the more interesting aspects of Lewis’ article pointed out that financial experts are already salivating at the idea of a “jock market”–it is sure to bring scores of unexperienced investors. This paragraph, in particular, made me laugh out loud:

“Bad investors attract good investors, who see the opportunity to take their money—or as the leading sports agent puts it, “Smart people will be interested in this because stupid people will.” And smart people, over time, will drive market values. When the agent mentioned his plan to a former Wall Street colleague, now a top hedge fund manager, the man said, “Great, in the beginning I’ll just short every player,” then added he would start with Tiger Woods.”

http://muse.jhu.edu/journals/perspectives_in_biology_and_medicine/v047/47.2tsonis.pdf

In the 2004 article, “A ‘Small-World’ Network Hypothesis for Memory and Dreams,” which appeared in the journal, Perspectives in Biology and Medicine, Panagiotis Tsonis links the small world phenomenon with memory processes in the brain. Citing the hypotheses of Watts and Strogatz that the connections between neurons create small-world networks, Tsonis suggests that memory associations similarly form small world networks, with each separate memory representing a different node in the model. Tsonis describes how memories are associated with the events and environment surrounding their formation, and how exposure to similar surroundings can trigger a cascade of stored memories leading to a seemingly irrelevant recollection. The article further relates the small world hypothesis to dreaming, noting that during sleep, memory consolidation occurs. During non-REM ( “hypnagogic” ) sleep, instances experienced throughout the day are incorporated into the long-term memory, while during deeper, REM sleep, more incoherent, stressful thought-processing and dreaming occurs. Tsonis posits that there are 2 network models involved in dreaming: a small-world, memory-association network that constructs the long-term memory during non-REM, conscious dreaming and a more random model of activated thoughts/memories during REM dreaming.

This article relates to our class discussion of the small-world phenomenon. Originating with the work of psychologist Stanley Milgram and his 1967 letter-targeting experiments (which gave rise to the phrase, “six degrees of separation”), the phenomenon shows how an apparently clustered, localized set of nodes (or people) with few long-range connections can be remarkably interconnected. This article extrapolates the concept to thought-processing and memory formation, suggesting that just as people are linked in a small-world network model, so too are memories. Furthermore, Tsonis suggests that these ordered memory networks are constructed during non-REM dreaming, as opposed to the more random thought models which occur during REM dreaming.

Globalization and expansion of markets are popular phenomena in the contemporary world. It is important, nowadays, for producers to consider the market potential and the speed of diffusion in international markets but these factors vary greatly across countries. A paper by researchers at the Yale School of Management discusses the cross-national market penetration factors that lead to a significant difference in the international success of a product. In general, diffusion literature purports that not everyone who recognizes a new product purchases it. Adopters are those who have 1) the ability to pay, 2) the willingness to pay and 3) access to the market. When applied to the international scene, these factors assume a complex role. For instance, the ability to pay cannot be determined simply by GNP per capita (in dollars); rather it has to be adjusted for inflation and the differences in prices across countries. A Big Mac costs US$4 in the U.S. and £3 in

Britain. The difference in price of the same product leads to the need for normalization of cost. (Interestingly, this index is called the Big Mac Index). As such, the aforementioned paper suggests the use of Purchasing Power Parity (PPP) adjusted average income per capita to measure a consumers’ relative ability to pay. In addition, the penetration/diffusion potential is affected by the consumer’s willingness to pay which depends on the incremental benefit offered by the new product. The following examples highlight the importance of this parameter: if customers do not have access to terrestrial phone lines (as in many developing countries), they may be willing to more readily adopt a cell phone if it is available. Similarly, since fax machines need installed telephone lines, the diffusion potential of fax machines will be positively related to the per capita installed base of telephones in a country. Finally, access to a product is determined by the openness of a country’s economy. Openness leads to greater competition and increased production and distribution efficiency. As such, products looking for a dynamic market will do well in a country with an open economy.

Another paper on the same issue highlights the social and cultural attributes that play a significant role in cross-country diffusion. Experiments show that in countries with common traditions and language, the average rate of adoption of products is higher compared to that in countries which are not as homogeneous. In the former set of countries, information spreads easily through ‘word-of-mouth’, as a result of which people tend to imitate and consequently, promote the use of a product. Another interesting observation is that the level of innovation is lower in countries with higher percentages of women in the labor force. In particular, products that are considered ‘time-consuming’ find it extremely difficult to find a foothold in such societies. At the same time, the level of imitation in these societies is considerably high. There exist such and more factors that contribute to the success of an innovation in a foreign market. I will explore some of these factors and the mathematical distributions that can be used to model them in my final paper.