Matthew Effect as a Reflexive System. tceffE wehttaM metsyS evixelfeR a sa. Yaroslav Prytula Dept. International Economic Analysis and Finance, Lviv Ivan Franko National University, Ukraine IREX Visiting scholar at George Mason University . Outline. What is the Matthew Effect?
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tceffE wehttaM metsyS evixelfeR a sa
Dept. International Economic Analysis and Finance,
Lviv Ivan Franko National University, Ukraine
IREX Visiting scholar at George Mason University
What is the Matthew Effect?
Evidences and logic of the Matthew Effect
Modelling of the Matthew Effect
Is the Matthew Effect a natural law?
Reflexivity and the Matthew Effect
For unto every one that hath
shall be given, and he shall
have abundance: but from him
that hath not shall be taken away
even that which he hath
Difference in investing $100 and $1000 for 50 years with 5% compounding interest rate.
“the scale and distribution of conditions that provide various probabilities for acting individuals and groups to achieve specifiable outcomes”
“the interacting processes of individual self-selection and institutional social selection affect successive probabilities of access to the opportunity structure”
I have seen something else under the sun:
The race is not to the swiftor the battle to the strong,nor does food come to the wiseor wealth to the brilliantor favor to the learned;but time and chance happen to them all.
Myrdal (1944) provides very similar analysis of cumulative (dis)advantage (circular causation) to Merton works.
While Merton was inclined to ascribe to social systems a natural tendency toward stable equilibrium, Myrdal was rather skeptical of the existence of natural equilibrium of any kind (Rigney 2010).
Myrdal points out that dynamism and instability are the natural order of things in economics and other social systems:
“circular causation has validity over the entire field of social relations. It should be main hypothesis when studying economic underdevelopment and development”
The last proposition is quite similar to Soros’s (1987) concept of reflexivity in social systems.
Podolny’s (1993) points out that status-erosion occurs as the consequence of a high-status organization’s choice to expand in market share by encroaching on a lower-status competitor’s niche.
In their article “When Do Matthew Effects Occur?” Bothner et al. built a model of status-based competitionin which actors always experiencethe Matthew Effect at the micro level. They studied what happens on macro level.
Their findings reveal the importance of a singlefactor governing whether the Matthew Effect operates freely or iscircumscribed. This factor is the
degree to which status diffusesthrough social relations.
When actors’ status levels are stronglyinfluenced by the status levels of those dispensing recognition to them(i.e., status diffusion occurs), then in due course the top-ranked actoris nearly matched in status by the actor she endorses, i.e. no ME.
A case of status diffusion, isin the well-known account of Baron de Rothschild’s endorsement ofa friend who requested a loan: “Reputedly, the great man replied,‘I won’t give you a loan myself; but I will walk arm-in-arm withyou across the floor of the Stock Exchange, and you soon shall havewilling lenders to spare”’ (Caldini, 1989).
A prediction that directly or indirectly causes itself to become true.
Merton: “The self-fulfilling prophecy is, in the beginning, afalsedefinition of the situation evoking a new behaviour which makes the original false conception come 'true'.”
Thomas theorem (1928):”if men define situations as real, they are real in their consequences”
Keynes’s Beauty Contest Theory (1936)
Goodhart's law (1975): once a social or economic indicator or othersurrogatemeasure is made a target for the purpose of conducting social or economic policy, then it will lose the information content that would qualify it to play such a role.
Examples in finance, consumer behavior, voting.
Raghuram Rajan (Chicago Univ.) on causes of recent crisis:
Could it be corruption? Some academic economists consult for banks or rating agencies, give speeches to investor conferences, serve as expert witnesses, and carry out sponsored research. It would be natural to suspect us of bias. The bias could be implicit: our worldview is shaped by what our friends in industry believe. Or it may be an explicit bias: an economist might write a report that is influenced by what a sponsor wants to hear, or give testimony that is purely mercenary.
Reflexivity = An act of self-reference or self-feedback.
Soros (1987): the biases of individuals enter into market transactions, potentially changing the perception of fundamentals of the economy.
Umpleby (2007): Reflexivity occurs in social systems when an actor observes and thinks about his or her actions and their consequences and then modifies his or her behavior
Sourse: Umpleby 2007
Matthew Effect may be a feedback mechanism of observation into observation, like, compounding interest rate.
Matthew Effect may be a feedback of observer to observer’s social group back to observer, like social-multiplier effect.
Also, Matthew Effect may be a feedback of observation to observer to observer’s (or observer’s group) behaviour to observation, like the Facebook.
Weak Reflexivity refers to automatic feedback mechanism of an object (observer) to itself when no information is needed to initiate the mechanism. Example: compounding interest rate as positive feedback. Many psychological heuristics represent weak reflexivity. Keynes's Animal Spirit.
Semi-strong Reflexivity refers to a feedback mechanism of an object (observer) to the social group it represents. In order to semi-strong reflexivity to occur the information between object, social group and/or the whole society needed to circulate. Example: income inequality, urban-rural migration.
Strong Reflexivity refers to a feedback mechanism when observer is included in the domain of observation. Both information and knowledge are needed for strong reflexivity to occur. Example, economic policy making , financial crisis.
Merton(1968) defines Social mechanisms as “social processes having designated consequences for designated parts of the social structure.”
Other words (Hendstrom and Swedberg 1998) can be depicted as
Inputs -> Social Mechanisms -> Outputs
Merton considered Matthew Effect as one example of social mechanism.
1. Matthew Effect is a partial case of broader notion of Reflexivity, and
2. Reflexivity is a partial case of social mechanisms.