Another example of how false information, amplified through positive feedbacks, can lead to real panic: in Veracruz Mexico two people posted messages on twitter reporting kidnappings at a local school. The messages spread rapidly through social media leading frightened parents to rush to try and save their children. The panic caused dozens of car accidents and jammed the city’s emergency phone lines.
Amnesty International was quoted saying, “The lack of safety creates an atmosphere of mistrust in which rumours that circulate on social networks are part of people’s efforts to protect themselves, since there is very little trustworthy information.” As with many “tipping point” phenomenon, before the spark that set off the visible cascade, there was most likely a “contextual tipping point” that made the resulting contagion possible. Governments or managers have to realize that the only way to reliably prevent these cascades is by changing the context, not by stamping out all of the sparks.
On Friday, August 5, Standard & Poor’s downgraded the credit rating of the U.S. long-term debt to AA+. On Monday, the first day the markets opened since the downgrade, the Dow Jones Industrial average dropped 5.6 percent and the S&P 500 fell 6.7 percent — the biggest single day drops since the crisis in 2008. A lot of people might be confused about this turmoil in the markets, since US debt is still considered one of the safest investments there is. Jay Forrester, founder of the field of System Dynamics, calls puzzles like this the “counterintuitive behavior of social systems.”
Undoubtedly, the world economy is incredibly complex, and no individual or organization has a complete picture of how it works or where it’s headed. Through pricing, the market is supposed to aggregate all of the pieces of partial information that we each hold and then converge to the “truth” — that is prices should reflect true underlying value. In some situations this can actually work. Prediction markets have been shown to be valuable tools for businesses to harvest the “wisdom of the crowds” and assess the probabilities that future events occur. But, this mechanism works best when individuals place their trades independently based on their own private information. In the real world, market dynamics are fundamentally social dynamics and as such they are subject to cascades of panic and the accumulation of overconfidence (what Alan Greenspan famously referred to as “irrational exuberance” (see also Robert Shiller)).
The current panic illustrates how even when there is no fundamental basis for a panic, social dynamics can amplify the signal of a panic to the point where an actual crisis ensues. The gas shortages of 1979 are a classic example of this phenomenon. The Iranian revolution sharply cut oil imports to the US from Iran. Nervous consumers rushed to top off their tanks and even to hoard gasoline at home. This drained the supply of gasoline at filling stations leading to an actual gasoline shortage. Word-of-mouth and media coverage reinforced consumer fears of shortages, leading to even more topping off and hoarding, as well as government policies such as odd/even day purchase rules that actually further incentivized consumers to top off frequently and store gasoline at home. Surprisingly, despite the very real shortage of gasoline at filling stations, US oil imports for the year actually increased in 1979 compared 1978. The crisis was caused by social dynamics, not an actual drop in supply. (See Sterman, Business Dynamicsp. 212).
A similar but more comical crisis occurred in 1973 when Johnny Carson made a joke saying, “You know what’s disappearing from the supermarket shelves? Toilet paper. There’s an acute shortage of toilet paper in the United States.” Consumers rushed out to stock up on toilet paper, leading to a real toilet paper shortage in the US that lasted several days. Even though Carson tried to correct the joke a few days later, by that time toilet paper was in fact in short supply because people were hoarding it at home.
Today and tomorrow I’m at the Interdisciplinary Workshop on Information and Decision in Social Networks at the MIT Laboratory for Information and Decision Systems (WIDS@LIDS). Nicholas Christakis gave a thought provoking talk this morning drawing on a lot of material from his book, Connected, written with James Fowler. One of the first ideas he raised is that humans are unique in having a social pressure on our evolution. Humans and other species also face environmental and other species evolutionary pressures. But, he argued that humans are unique in this social pressure because we live in close proximity and other human groups are one of the biggest threats that we face. He went on to say that possibly this unique social pressure is responsible for humans evolving intelligence, because in order to navigate the complexities of social interactions, we need substantial intelligence. I’m not sure that I buy this argument though. What about ants, bees, wolf packs, … ? All of these species work in groups, cooperate, and face competitive pressure from other groups, but none of them have evolved intelligence on a human scale.
Christakis ended his talk asking about why certain ideas are “sticky.” I think this is a super interesting and super difficult question. I’ve been talking with Adam Berinsky in the Political Science Department at MIT about this question in relation to political rumors. Why does the rumor that Obama was born in another country stick around, but other rumors die out? Christakis suggested that this might somehow be a tractable question, but I think it is much more subtle. First of all, there are no natural metrics for judging ideas. Second of all, we can’t just look at which ideas have actually taken off and which haven’t, because so many other chance factors come into play. Because of the big positive feedbacks involved in the spread of ideas, this process is highly susceptible to chance tipping (see the work by Salganik, Dodds, and Watts). It’s very east to fall into the trap that Duncan Watts sums up in the title of his recent book, Everything is Obvious Once You Know the Answer. Once an idea does “go viral,” like the Birther rumor, it is tempting to make up a narrative that says, well of course that rumor spread because it has attributes x, y, and z. But, if the rumor had died we could just as easily construct a different narrative explaining its failure. Paul Lazarsfeld’s paper on The American Soldier gives a fantastic example of how we can trick ourselves into believing this kind of after the fact rationalization.
There is a great story on the Atlantic’s website about a fake quotation that exploded on Facebook and Twitter after Osama Bin Laden’s death. The quote, wrongly attributed to Martin Luther King Jr. is:
“I mourn the loss of thousands of precious lives, but I will not rejoice in the death of one, not even an enemy.”
The author of the article, Megan McArdle, traces the origins of the wrongly attributed quote to a facebook post from a 24 year old Penn State graduate student (check out the article for the fascinating story). This brings up some interesting issues about rumors and social media. An open question regarding information and the web, is whether technologies like social media and the Internet in general increase or decrease the prevalence of false information. On the one hand, the “wisdom of the crowd” might be able to pick out the truth from falsehoods. True statements will be repeated and spread, while false statements will be recognized by a great enough number of people to squelch them. On the other hand, we know that systems like this with strong positive feedbacks can converge to suboptimal solutions. If you think of retweeting some piece of information as like casting a vote that it is true, we might expect information cascades of the sort described theoretically by Bikhchandani et al.. In this case, two things seem to have happened. Initially, there was a sort of information cascade that led to the spread of the quote. Then it wasn’t the wisdom of the crowds that led to the squelching of the rumor, but the efforts of knowledgable individuals tracing the quotation back to the initial post. What the Internet provided was a way to uncover the roots of the false information for those willing to take the time to look.