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Economics of Science: The Role of Social Bubbles

English title Economics of Science: The Role of Social Bubbles
Applicant Sornette Didier
Number 132687
Funding scheme Project funding (Div. I-III)
Research institution MTEC ETH Zürich
Institution of higher education ETH Zurich - ETHZ
Main discipline Science of management
Start/End 01.10.2010 - 31.12.2013
Approved amount 394'884.00
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All Disciplines (4)

Discipline
Science of management
Sociology
Mathematics
Economics

Keywords (4)

Complex Systems; Social Systems; Bubbles; Innovation

Lay Summary (English)

Lead
Lay summary
It has never been more important to understand the role that innovation plays in fostering economic development. Our premise is that times of uncertainty, of fear, of crisis, are the ripe moments that catalyze new ventures to prepare the prosperity of the future. Great companies have indeed been formed in down markets, including Adobe, Broadcom, Chevron, Digital Equipment, HP, Microsoft, Rambus, Skype, Texas Instruments, and Westinghouse. Our research studies how risk-taking behavior associated with innovations is modulated by economic, social and financial factors. Specifically, we focus on the phenomenon that we have dubbed "social bubble".The "social bubble" hypothesis proposes that strong social interactions between enthusiastic supporters of new ventures weave a network of reinforcing feedbacks that lead to a widespread endorsement and extraordinary commitment by those involved in the projects, beyond what would be rationalized by a standard cost-benefit analysis in the presence of extraordinary uncertainties and risks. Starting with analyses of previous bubbles, in particular the famous "Tulip mania", the social bubble hypothesis has been recently supported by the example of the Apollo project. The social bubble hypothesis suggests novel mechanisms to catalyze longterm investments, innovations and risk-taking by the private sector, which otherwise would not be supported.Our research aims at testing this hypothesis, that social bubbles are essential additional mechanisms that can help nations or important social groups to coordinate so as to collectivize the risks, thus playing a crucial role in the evolution of our technology and welfare. Our research explores four main questions: (i) what are the commonalities between past and present innovation and technological breakthroughs? (ii) how does the relative importance of government commitment, compared with the size of private initiatives in large projects, impact the development and successful completion of the projects? (iii) Are there benefits (and for whom) from social bubbles such as the Human Genome Project, the Apollo program, and the other three examples that will be studied (cloning, stem cells and biochips)? (iv) Can social bubbles be used to increase social welfare?How? What ingredients would be needed to foster social bubbles for social welfare?
Direct link to Lay Summary Last update: 21.02.2013

Responsible applicant and co-applicants

Employees

Publications

Publication
Role of the Interfirm Buyer-Seller Network in Aggregate Fluctuation and the Effect of Link Renewal, Econometrics
Hisano Ryohei, Watanabe Tsutomu, Mizuno Takayuki, Ohnishi Takaaki, Sornette Didier (2016), Role of the Interfirm Buyer-Seller Network in Aggregate Fluctuation and the Effect of Link Renewal, Econometrics, in SSRN, 1-17.
Strong gender differences in reproductive success variance, and the times to the most reent common ancestors
Favre Maroussia, Sornette Didier (2012), Strong gender differences in reproductive success variance, and the times to the most reent common ancestors, in Journal of Theoretical Biology, (310), 43-54.
Tulipmania? The Dutch Tulip Bulb Episode (1636-1637) revisited.
Gisler Monika (2012), Tulipmania? The Dutch Tulip Bulb Episode (1636-1637) revisited., Chronos Verlag:, Zürich.
Innovation as a social bubble: The example of the Human Genome Project
Gisler Monika, Sornette Didier, Woodard Ryan (2011), Innovation as a social bubble: The example of the Human Genome Project, in Research Policy, (40), 1412-1425.
High quality topic extraction from business news explains abnormal financial market volatility
Hisano Ryohei, Sornette Didier, Mizuno Takayuki, Ohnishi Takaaki, Watanabe. Tsutomue, High quality topic extraction from business news explains abnormal financial market volatility, in PloS ONE, 8(6), 1-12.

Scientific events

Active participation

Title Type of contribution Title of article or contribution Date Place Persons involved
Mino's Memorial Symposium / D. Sornette Talk given at a conference How the brain makes decisions:Quantum decision theory. 19.08.2012 NASA Ames Research Center, Moffett Field, California/USA, United States of America Sornette Didier;
FUR XV International Conference (Foundations and Applications of Utility, Risk and Decision Theory) / D. Sornette Talk given at a conference Quantum decision theory with prospect interference and entanglement. 30.06.2012 Georgia State University, Atlanta/USA, (ExCEN and CEAR), United States of America Sornette Didier;
Facts, Fictions and Cultures - ESRC Genomics Network Conference / M. Gisler Talk given at a conference Exuberant Innovation: The Human Genome Project 24.04.2012 British Library, London, Great Britain and Northern Ireland Grote Gudela; Gisler Monika; Sornette Didier;
Workshop / Innovation as a Social Bubble: Two case studies / M. Gisler Talk given at a conference -- 25.11.2011 Lund University/Sweden, Deparment of Economic History / SWINNO, Sweden Gisler Monika;
5. International Heinz von Foerster Congress / Keynote speech D. Sornette Talk given at a conference What percentage of our ancestors were men? The most underappreciated fact about men! 11.11.2011 University of Vienna, Vienna, Austria Sornette Didier;
8. International Conference on Complex Systems (ICCS 2011) / Keynote speech D. Sornette Talk given at a conference What percentage of our ancestors were men? The most underappreciated fact about men! 26.06.2011 Boston, USA, United States of America Sornette Didier;


Self-organised

Title Date Place
Financial, Technological, Social and Political Bubbles 26.03.2015 Zürich, Prime Tower, Switzerland

Knowledge transfer events

Active participation

Title Type of contribution Date Place Persons involved
Seminar on Auditory Informatics Talk 08.11.2011 University Zuerich, Institute of Neuroinformatics, Switzerland Sornette Didier;


Communication with the public

Communication Title Media Place Year
New media (web, blogs, podcasts, news feeds etc.) Unternehmensgeschichte Webseite German-speaking Switzerland 2014

Associated projects

Number Title Start Funding scheme
138725 Computer-aided innovation 01.09.2011 International short research visits

Abstract

As this proposal is being written (February 2010), the world has gone through the worst financial crisis, by many indicia, since the Great Depression. It is not yet clear whether we have gone through the worst or if worse is yet to come. In many respects, economies have stabilized and many of the largest have emerged from technical recession. For self-evident reasons, governments are now beginning to tout “the recovery,” the severity of job-loss notwithstanding. But a larger-scale view is not so rosy: Unfunded liabilities of a scale from which no economy has ever previously gotten out from under without either inflating its currency to a devastating extent, or via war. In this context, it has never been more important to understand the role that innovation plays in fos¬tering economic development. Our premise is that times of uncertainty, of fear, of crisis, are the ripe moments that catalyze new ventures to prepare the prosperity of the future. Great companies have indeed been formed in down markets, including Adobe, Broadcom, Chevron, Digital Equipment, HP, Microsoft, Rambus, Skype, Texas Instruments, and Westinghouse. We propose to study how risk-taking behavior associated with innovations is modulated by economic, social and financial factors. Specifically, we focus on the phenomenon that we have dubbed “social bubble,“ that develops in a social and/or economic system during a technological or scientific project and that is characterized by strong growth of the presence in the media, newspapers, books, blogs, gossip columns, etc., by the flow of venture capital and Wall Street investments, by accelerated price growth of corresponding firms trading on organized stock markets, and possibly by the proliferation of ventures of all kinds. We believe, and this proposal aims at testing this hypothesis, that social bubbles are essential additional mechanisms that can help nations or important social groups to coordinate so as to collectivize the risks, thus playing a crucial role in the evolution of our technology and welfare.Our research will be articulated into four questions: (i) Is there a structure, a nucleation pattern, are there developmental dynamics, and end climaxes that are common to all social bubbles? (ii) How does the relative level of governmental commitment, compared with the size of private initiatives in large projects, impact the development and successful completion of the projects? (iii) Are there benefits (and for whom) from social bubbles such as the Human Genome Project, the Apollo program, and the other three examples that will be studied (cloning, stem cells and biochips)? (iv) Can social bubbles be used to increase social welfare? How? What ingredients would be needed to foster social bubbles for social welfare?Our methodology will use an analytic induction approach in order to combine qualitative and quantitative methods. The process of inducting theory requires using case studies, i.e. an inducting theory that allows constructing a logic of replication eventually leading to either the formulation of a model or its test. Qualitatively we will apply Ground Theory when sampling and analyzing the evidence. Content analysis according to Mayring (2008) will complement the analysis part. Quantitatively, three main methods will be developed: (a) the calibration of the possible financial signatures of bubbles in various components of the project, (b) the real option analysis of the project, informed by the preceding qualitative analysis and (c) network analysis of the interdependencies between involved firms, to extract the competition and collaboration at a systemic level.
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