Following the (Social Network) Herd

Here's another academic take on the financial implications of social media: Earlier in a Risky Business contribution I discussed the finding by a team of researchers at Northwestern University's Kellogg School of Business that traders acting in sync with one another, via instant messaging, are more likely to dodge losses. Now, a paper to be published in an upcoming Review of Economic Studies takes this line of inquiry a step further. It shows that large social networks in general often are quite efficient at aggregating the information that is so widely dispersed in society.