Decoding Social Influence and the Wisdom of the Crowd in Financial Trading Network
Author(s)Pan, Wei; Altshuler, Yaniv; Pentland, Alex Paul
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In this paper, we study roles of social mechanisms in a financial system. Our data come from a novel on-line foreign exchange trading brokerage for individual investors, which also allows investors to form social network ties between each other and copy others' trades. From the dataset, we analyze the dynamics of this connected social influence systems in decision making processes. We discover that generally social trades outperform individual trades, but the social reputation of the top traders is not completely determined by their performance due to social feedback even when users are betting their own money. We also find that social influence plays a significant role in users' trades, especially decisions during periods of uncertainty. We report evidences suggesting that the dynamics of social influence contribute to market overreaction.
DepartmentMassachusetts Institute of Technology. Media Laboratory; Program in Media Arts and Sciences (Massachusetts Institute of Technology)
2012 International Conference on Privacy, Security, Risk and Trust and 2012 International Confernece on Social Computing
Institute of Electrical and Electronics Engineers (IEEE)
Pan, Wei, Yaniv Altshuler, and Alex (Sandy) Pentland. “Decoding Social Influence and the Wisdom of the Crowd in Financial Trading Network.” In 2012 International Conference on Privacy, Security, Risk and Trust and 2012 International Confernece on Social Computing, 203-209. Institute of Electrical and Electronics Engineers, 2012.
Author's final manuscript