Monday, July 12, 2004

Reputation and Trust (aka "Network Closure")

After my recent post on community-building, I heard from a couple people discrediting Robert Putnam's arguments in Bowling Alone. In fact, the Institute for Social Network Analysis of the Economy (INSAE) provides a comprehensive list of resources for the aspiring social network practitioner. This list includes Bowling Alone, but only for the sake of criticizing it: "This book has popularized the notion of 'social capital.' His definition is plausable [sic], but not one that is born out by social network studies."

For another well-regarded cut at Putnam, see Burt's "Structural Holes versus Network Closure as Social Capital." You may recall Burt and his structural holes from one of my posts on Raytheon last week. A structural hole is a gap between two groups in a social network. As I explained in that post, these gaps often provide opportunities for innovation. Burt argues persuasively that structural holes provide much of the value of social capital.

The counterpart to "structural holes" is "network closure." For those of you wondering what "network closure" is all about, let me illustrate with a small personal example. I recently decided to find myself an acupuncturist. So when my friend Katrina, who is a massage therapist, hosted a party, I asked her for a recommendation. She introduced me to a friend of hers, Robert, who happened to be at that very party. Now I am confident that Robert will serve me well for two important reasons.

First, Katrina knows about Robert already and she told me his work is outstanding.

Second, because of my relationship with Katrina, I have much more influence on Robert's reputation than does a stranger who met Robert through the Yellow Pages. Already Katrina has told me she wants to hear about my experience with Robert so she can better inform her future recommendations. Not only does Katrina influence the opinions of her own friends and clients, but she also leads a learning circle of several health practitioners that includes Robert, and therefore she also affects how other members of the circle perceive Robert's work. My experience with Robert, good or bad, will influence his future referrals not just through Katrina but also through other members of their learning circle. And so Robert has a powerful incentive to provide me with the best service he can, in order to build and promote his own reputation.

The power of reputation rests on the idea of network closure, which is the degree to which everyone knows everyone else in a network. In a subgroup or "clique" where everybody knows everybody else, reputation can have currency much more powerful than money. Promises within the group can be trusted because the consequences of breaking a promise would be catastrophic. Anyone who mistreated a fellow member in such a group would quickly find himself ostracized by the entire group, his reputation ruined.

Within such a tight-knit group, the common trust becomes a valuable resource. With trust, fellow community members can engage in all kinds of everyday transactions without wasting time and energy ensuring protection from fraud. Without trust, each individual must look out for his own protection at every turn, relying on extensive research, legal contracts, and other safeguards.

So, we have seen that structural holes and network closure both provide value as different kinds of social capital. Structural holes, those gaps between groups, drive innovation. The tightly inter-conntected bonds of network closure promote trust through the power of reputation.

Getting back to Putnam, why does INSAE criticize him for his treatment of social capital in Bowling Alone? It seems to me that INSAE's criticism is misplaced. In Bowling Alone, Putnam refers to the complementary strengths of bridging capital (across groups) and bonding capital (within groups) that are completely analagous to structural holes and network closure. But since the main point of Bowling Alone is American community, not American innovation, Putnam rightly focuses on bonding capital in his pronouncements about social capital in general. I think Putnam would view INSAE's criticism as missing his main point -- that American community is in perilous decline.

But I have also heard critics tackle Putnam on precisely his main point. Could it be that despite Putnam's exhaustive research, American community is not in decline? Did Putnam look for results to support his thesis and ignore other kinds of burgeoning communities in America? Internet-driven virtual communities, for example? I find it hard to believe that American community is actually growing despite everything Putnam says, but I'm asking around to hear others' opinions on this one. If you want to chime in, let me know. I'll post what I hear soon.


David Wilson said...

I have not read the background articles or previous posts so please excuse me if I come into this discussion somewhat half-cocked. I agree that reputation and trust are critical dynamics in a community, but probably even more important in large and open communities (such as on the Internet) where direct personal knowledge is not possible.

Surely network closure is only one source of reputation, otherwise by implication the reputation of all members of the same network would be equal, this I would suggest is not the case. Reputation is also personal.

Your example hinges on direct personal knowledge where you can make a personal value judgement of the referer. Your decision is based on your knowledge of them rather than their (indirect) reputation. In an open group where you do not know the referer, your decision (as to whether to trust their advice) is now made on their reputation within the community rather to you personally. This reputation is not based on network closure, in fact it exists to counter the lack of closure. In an open group of many potential advisors, who do you trust?

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Matt Smith said...

Virtual communities, no doubt, have an impact on real communities. However, I would argue that Putnam's work stands as does Burt's. The main issue seems to be that social capital is challenging to define precisely. Are there any agreed upon mathematical definitions of social capital? (It seems that there is still too much ambiguity.)