28/09/2012

By Michael Baxter, economics writer

You might think that Al-Qaeda, the internet, a human brain, and the corporate world don’t have much in common, but they do. And here is one commonalty they all share: networks. And many networks, perhaps most, follow what’s called a small world, and scale free structure. Among others things, this makes them very robust.

It all boils down to hubs. Marketing people know all about hubs; it’s just that they call them opinion formers. Hubs are what make a network tick, and they are what make it hard to change. Studying them is one of the most important new fields which are emerging now; they can throw light on business and the economy too.

You have no doubt heard of six degrees of separation. The phrase comes from an experiment carried out by Stanley Milgram in which 296 letters were handed to people. There was one snag: the letters had no address, just a name, occupation and area. So, armed with this letter, each person in the experiment was asked to forward the letter to someone they thought was more likely to know the intended target. Most letters went missing, 64 found the addressee. It turned out there was an average of just 5.5 links between the first person and the ultimate recipient in the chain. From that we get the saying “six degrees of separation.” Some pedantic mathematicians say that Milgram’s conclusion was wrong, that actually taking into account the letters that got lost, 11 degrees of separation was a more accurate description. But that’s not the point, what really matters here is that within some networks there aren’t that many links separating each and every part – or node as they are referred to in the jargon. Hence we talk about small world networks.

The key to these small world networks effectively lies with hubs – a small number of highly connected nodes. And it turns out that networks tend to follow a power law: that is to say a very small number of extremely highly connected hubs. We call such a network a scale free network.

Such networks are pretty much everywhere in nature, and in business; they even form that funny shaped, rather important collection of neurons in our head.

Here is something else about scale free networks. They are incredibly robust.

The internet was designed in the cold war as a system to be impervious to nuclear attack. Al-Qaeda survived the death of Osama bin Laden. Such a system can only be knocked out by targeting most, if not all, of the hubs.

It was argued that across the economy banks are hubs. That’s how some of the brains (that’s scale free networks of neurons) at the Bank of England tried to use science to justify the banking bailout.

But scale free networks are incredibly hard to change too.

See ideas as a network. It is hard to change someone’s mind, because their beliefs are held together by a scale free network of ideas and influences.

And economies are really hard to change too, which is why… well the next article explains why sometimes bubbles are good.


Michael Baxter, mike@iabn.co.uk

Editor the investment and Business news newsletter , blog.share.com and author of the Blindfolded Masochist