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Brief:

Network initiation processes can be consequential with regard to the structure and properties of a social network. Despite this, until now initiation dynamics has been little investigated in empirical settings. Using a dataset with over 3,000 traders and 51,000 ties from a social trading platform (STP), we investigate this dynamic and its impact on the structure of traders’ networks within an STP. STPs allow participants to form consensual ties by sending and accepting friendship requests. Once a tie is formed, nodes get access to each other’s truthful trading histories.

We examine the following factors as possible drivers of network initiation: information searches, learning, herding, and status seeking. We find that participants are more likely to initiate a tie after a change in their financial performance, but less likely to accept a tie from someone performing better than them. In terms of ulterior trading performance, traders who accept a tie benefit more than those who initiate it. The outcomes of this initiation dynamics are multiple networks in which traders maintain ties with those doing financially worse than them. Such networks will tend to exclude traders performing better than the one at the top. Based on this, we argue that reputation and status are the key drivers of networks initiation, leading to a prestige economy with multiple networks (instead of a unique one) in which influencers dominate, performance-wise, a group of followers. Theoretically, we draw attention to the role of initiation dynamics in shaping the structure of a consensual network. Empirically, we highlight the role of status seeking in social media-supported financial networks.

Speaker
Alex Preda is a sociologist working at the intersection of economic sociology and the sociology of technology. His current research projects concern the impact of social media on financial markets and blockchain technologies, respectively. He is professor of sociology at Lingnan University, Hong Kong. He has previously held positions at King’s College London and the University of Edinburgh.