Viral Network Effects & Compound Growth & Game Theory

There is a clear gap between the skills we need and the skills we are taught in standardized education. As a society, we haven’t updated education curriculums to include topics such as network effects, exponential growth, and compounding information in the digital age. Human life is becoming increasingly more digital, we are now seeing the creation of the Digital Citizen. An increase in digital life raises the importance of understanding these topics in our daily lives.

You can no longer afford to be ignorant of these fields. Each subsequent generation enters the world and becomes digitally native and compounds the problems of this knowledge gap.

Here’s a look at a current event example of why these fundamental skills must be taught to everyone.

Coronavirus – a story of network effects and compounding

Coronavirus is wreaking havoc throughout the world and is showing real signs that it will become a pandemic. Regardless of the total impact, it’s clear that as the viral outbreak expands, fear of contagion will spread quickly with a disproportionate amount of people waiting until it’s too late to take precautions.

As 1st world societies approach this impending viral outbreak, it seems that people are suffering from a form of lunacy. There is a lack of interest and malaise in taking the situation seriously. This fact is despite the data suggesting that the coronavirus has an exponential growth rate and once spread, it’s extremely difficult to contain.

There is a certain amount of NIMBY arrogance in the developed world, the attitude of “Those type of things don’t happen here”.

But this is more likely this is a case of Hanlon’s Razor – it’s not a malicious act of neglect but an act in ignorance. Most people don’t understand some of the fundamental components that define the risk of viral pandemics. This represents a real problem for Digital Citizens because all of the skills for assessing the risk of this outbreak are transferable and important for navigating an increasingly digital world.

Below, is a breakdown of what they are and why they matter.

Network Effects – Social Media

You don’t exist online these days without being a part of a social media platform. Most people actively participate on several at a given time. Social media platforms are an elaborate system that leverages network effects. Ie: they grow in value as more people join the network. Understanding the power of network effects is an essential part of building a digital business and establishing a global digital presence.

But network effects can also have negative consequences. As in the case of the coronavirus, the more people that contract the virus, the more people they will ultimately be able to infect. The viral network strengthens as more people become infected.

This makes a good comparison because most people with even a moderate level of digital sophistication understand the term “going viral”. It’s a direct comparison to the spread of a virus. The more people that share it, the faster it grows. This process is a feedback loop of growth that operates based on the principle of compound growth.

Compound Growth

Compound growth rates are hard for humans to understand. It’s not a natural concept that fits easily within our mind’s eye. Linear growth is easy to visualize in our heads but exponential growth is something that feels abstract. But understanding how compound growth works is essential to establishing a digital presence.

The graph illustrates how exponential growth (green) surpasses both linear (red) and cubic (blue) growth.  Exponential growth

In traditional forms of standardized education, we learn about compounding in financial terms. This is an essential application of exponential growth but is only a fraction of the knowledge a Digital Citizen needs to understand.

Since becoming a globally networked society, information growth has grown at an exponential rate. Understanding this fact is essential to establishing a meaningful digital presence.

As an example, are you someone that wants to build an audience online? Then understanding how information grows exponentially will help you see the value in selecting a niche of operation and owning that space based on curating content and acting as a signal filter that removes unnecessary information noise. This has become especially prevalent as search engine tools have become efficient at categorizing information by user preferences on the internet.

Viral Exponential Growth Rate

Returning to the coronavirus example, communicable diseases function on using network effects and compounding growth curves. They function inherently like social media, the larger the exposed network becomes the greater the impact is.

The general knowledge gap in these fields is glaringly apparent by the general lack of fear at the growing virus outbreak. It’s clear that most people don’t understand that the spread of the virus is reaching a critical point where a runaway feedback loop takes place. It’s the social media equivalent of “going viral”.

Black Swans

But because it’s challenging to understand exponential growth, network effects, and the speed with which they compound, it’s not difficult to understand the reaction to the coronavirus.

When you combine these factors with the developed worlds inclination to settle into a routine, NIMBY – “this has never happened before” attitudes, it’s also easy to understand how contagion can be spread before its taken seriously.

Viral outbreaks are a black swan event. Exceedingly rare, seemingly unpredictable and resulting in often chaotic outcomes. Black Swan events are typically followed by a mix of “how could we have possibly known” and hindsight rationalizations after the fact.

What is clear is that this corona virus is a quickly becoming a black swan event with considerable asymmetric downside risk associated with not preparing. ie: in hindsight it will look relatively inexpensive to have prepared in advance. Setting aside a few hundred dollars worth of preparation to avoid extreme illness and possible death is not much of a cost.

But because most people don’t think through their actions or lack of action to the logical conclusion, events like a viral outbreak can spiral out of control.

Game Theory

In our example, the variance in understanding the network and compounding effects of viral contagion will lead to varying degrees of response. But how will your peers react once they understand that the coronavirus has broken containment and running rampant through the US?

In the early stages of an outbreak, there will be a run on respirators and then a run on the supermarkets. Then you comes opportunistic entrepreneurs and price gouging with the resulting government crackdown.

Our ability to think through the 2nd and 3rd order consequences of our own decision making and that of our peers is not uniform across society.

Not everyone will approach decision making the same way no matter what we do, but we can update the standardized education model to include the teaching of game theory. Game theory is the study of the how and why people make decisions, it’s like studying the moves of chess except the pieces are real life decisions.

Game theory isn’t just useful for viral pandemic planning.

It’s useful for all decision making processes. It’s an essential tool for Digital Citizens to navigate global networks of people. How will this tweet be interpreted by different sets of people from disparate cultures? What will the consequences of misinterpretation be? “It has been more profitable for us to bind together in the wrong direction than to be alone in the right one.

We should teach our children about Network Effects, Compound Growth, and Game Theory because they are essential skills in an increasingly digital world. An understanding and mastery of these topics will establish the those that have influence and those that do not in the decades ahead.

2 thoughts on “Viral Network Effects & Compound Growth & Game Theory

  1. ? exponential & log growth is according me less abstract in our word compared to a lineair. Simply the former happens more when successful and is outcome is more visibility among us. Lineair leads to an impression of fading out effect due to a less transparant total effect.

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