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Some Facebook Economics: The Downside of Free Communication in a Huge Social Network

Tuesday, November 15, 2016 9:33
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Years ago, I read a piece arguing that the Internet was slowing down progress in theoretical physics.  If young physicists didn’t have access to the Internet, they wouldn’t know what the leaders were working on.  Such “ignorance” would mean that the young would pursue their own independent thoughts and wouldn’t herd.  The Internet allows easy diffusion of what the Nobel Laureates are working on. It is natural for young people to seek out the favor of the “Great Gods” of the discipline and thus the Internet reduces the number of “independent draws” that researchers take from the distribution of new ideas. This herding means that physicists may follow each other down the wrong dark alley and not make discoveries. If such individuals had been independently pursuing their own agendas, then a discovery would have been more likely to take place.

I tell this long story because I recalled it as I read this NY Times piece about the “dangers of Facebook”.  While the author doesn’t explicitly say it, she is implicitly saying that Facebook induces  a positive correlation between voters’ “information sets”.  A common piece of “new news” (a shock) can induce correlations in voting behavior.  Given the extent of Facebook’s network (which we had viewed as a good thing), a false story can have large implications.

In the past, social network theorists have talked about the “dark side” of social capital and this includes the KKK and terrorist attacks and group loyalty.  Facebook introduces a new case in which it is very cheap per influenced person to spread a rumor (especially when people want to believe the rumor).  Does FB make the world a “better place” if its network can be used to accelerate false rumors through its system?    Can communication costs be too low in a democracy?

My Columbia Colleague Dan O’Flaherty argued that you should have to pay 1 penny to send an email. This would help with spam!

Will people start to boycott FB due to their concern?  Could a rival platform with less “mis-information” emerge?  What is “mis-information”?  Who will decide what is the truth? Will FB have a truth commission? Will it hire George Orwell’s descendants to help it judge what is what?

Does the Zuck face a challenge of bad apples driving out “good apples” in this market?  Does a market designer have an incentive fix to solve this supply problem?  This is a supply problem because people are strategically supplying stories to Facebook anticipating that there is a demand for them.

Just as Microsoft’s AI quickly learned to “talk dirty”,  will there be a “race to the bottom”?  Will FB’s stock price rise or fall due to this mis-information campaign?  What is the Zuck maximizing? If he is a profit maximizer, should he change anything?


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