2012 International Conference on Privacy, Security, Risk and Trust (PASSAT) (2012)
Sept. 3, 2012 to Sept. 5, 2012
Wei Pan , MIT Media Lab., Cambridge, MA, USA
Yaniv Altshuler , MIT Media Lab., Cambridge, MA, USA
Alex Pentland , MIT Media Lab., Cambridge, MA, USA
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.
Market research, Mirrors, Correlation, Portfolios, Social network services, Security, Media,Crowd Wisdom, Financial Trading, Social Network, Influence
Wei Pan, Yaniv Altshuler, Alex Pentland, "Decoding Social Influence and the Wisdom of the Crowd in Financial Trading Network", 2012 International Conference on Privacy, Security, Risk and Trust (PASSAT), vol. 00, no. , pp. 203-209, 2012, doi:10.1109/SocialCom-PASSAT.2012.133