Sunday 18 February 2018

The ice bucket challenge and why direct support should be aimed at households

Top Irish models get a dousing in aid of the MND Ice Bucket
Top Irish models get a dousing in aid of the MND Ice Bucket

What does a viral outbreak and a social media money spinner for a charity have to do with Europe's broken banks?

We live in networks of friends, family, colleagues, communities and countries. Our banking systems are networks connected by flows of money moving between individual banks, across country borders. Many of the processes we now understand as being 'of' the economy are, in fact, spread over networks.

Think of how you decide to watch a film. You listen to recommendations from sources you trust. The good films tend to cascade, with good recommendations following the good films, and so forth. Blockbuster films come from this 'good' information cascade, and big films can flop for the same reason. The same mechanism, where positive or negative information gets diffused like a spray of perfume through the air, is in effect when stock market crashes happen. Suddenly, the market crashes as everyone decides certain assets are not worth what they thought they were worth, and everyone sells off. Networks matter.

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