How Structural Balance Influences Information Sharing and Decision Making Performance
Link: https://www.nature.com/articles/s41467-019-10548-8#Abs1
A complete graph where relationships are either positive or negative tends to evolve towards a balanced state, for which all of its triangles have a balanced structure (either all three all friends, or 2 against 1). Looking at the bigger picture, structural balance property (SBT) is built off of four rules: a friend of a friend is a friend, a friend of an enemy is an enemy, an enemy of an enemy is a friend, and an enemy of a friend is an enemy.
While we only discussed in class how balanced structures influence social relationships, this study, published in June 2019, delved deeper into the relationship between network balance of a social organization and worker’s performance in risky decision-making. The study analyzed the behavior and performance of a hedge fund’s 66 day-traders over a 2-year-period. Trader’s affective relationships (positive) are determined by content analysis of their instant messages, and their trading performance is measured from day-to-day profit and loss.
One of their findings, which I find most engaging, is how greatly trader’s performance is related to the change of network balance. In specific, they defined the degree of balance for a trader at time t as the ratio of the number of classically balanced triads to total triad configurations it is involved in over period t. As a result, it holds for 75% of the data that there’s a strong positive relationship (almost linear) between a trader’s degree of structural balance and the performance; the change from medium to high balance is associated with an almost 30% increase in profits.
Indeed, in the real world, trading decisions are made not only based on useful information, but also with the help of efficient collaboration or emotional communication with peers. These two essential ingredients are exactly what a balanced structure could provide. On the contrary, traders involved in unbalanced or strained relationships could be distracted by interpersonal riffs, and being non-cooperative or isolated could result in a lack of information gain, emotive support, and consensus with peers. This leads to a higher chance of making irrational risky decisions, which undermine the performance.