I'm reading Nicholas Christakis and James Fowler's enlightening and fun new book, Connections. When a top psychologist and political scientist get together, you've got the makings of some terrific insights into the way the world of individuals and groups work.
Some of the things they've learned are:
- Happiness is contagious
- Your future spouse is likely to be your friend's friend
- Your friends' friends' friends can make you fat--or thin
Like Gladwell's outliers, but with more fascinating insights and research, Connections overturns the primacy of the individual and shows that we are unconsciously led by the people around us.
Here's how the New York bankers got screwed by a social network.
Economists Morgan Kelly and Cormac O'Grada studied Irish depositors at a New York bank (Emigrant Industrial Savings Bank) during the two panics in the 1850s (nothing really new about bank panics, except who gets screwed). They have an extraordinary amount of information about these depositors, including which parish in Ireland the depositors came from. Arguing plausibly that individuals from the same parish were likely to have known each other during this time, they used this information to construct social networks and to see whether socially close individuals corresponded in their decision to withdraw money during the panic. Kelly and O'Grada found that social networks were the single most important factor in explainging the closure of accounts during both panics, even more so than the size of the accounts or the length of time they had been opened. Thus, financial panics may result from the spread of emotions or information from person to person.
Traditional economists would say that these panics were an aberration, because the behavior is not rational. Mr. Greenspan ignored history, psych and sociology. Eventually, he gave up and decided we're not nearly as rational, even with our money, as we like to think. The wisdom of crowds can quickly turn to folly. To quote Christakis and Fowle:
We are all capable of thinking with our heads, but our hearts keep in touch with the crowd, and sometimes this leads to disaster.