Sheen S. Levine

The institutionalized status of markets is undoubtedly due to their presumed ability to aggregate individual bids into a single unbiased estimate of value. While not denying this emergent property of market processes, we propose and test an alternative perspective that explains how market processes can also generate the propagation of individual valuation errors that aggregate into price bubbles. Theoretically, we advance a microinstitutional perspective that draws from social and evolutionary psychology linking market processes to a more general process of institutionalization, whereby individuals seeking the adaptive benefits of conformity may-due to bounded and socially biased rationality-instead generate maladaptive individual and collective outcomes. Empirically, we craft an efficient experimental market and find three sets of evidence consistent with our microinstitutionalization perspective. We first show-at the individual level-that market participants exhibit a social bias toward conformity with the market's collective valuation, even when the emergent market valuation is demonstrably incorrect. We then show-at the market level-that the range of valuations over time also decreases in a conforming direction, again independent of valuation accuracy. Last, we provide the first experimental test of the long-assumed effect of social ambiguity on institutionalization, finding that market participants' over-attention to the collective valuation is indeed sensitive to variation in social ambiguity. We conclude by highlighting the relevance of our theoretical perspective, method, and findings for future research on institutions and institutionalization processes, as well as future studies on social influence and conformity-based errors.

The actions of collectives who primarily meet on-line have recently captured the attention of the media, general public, business executives, and academics. File-sharing, open-source, and computer viruses are all carried out by loosely bounded collectives, rather than by firms or other formal organizations. These collectives operate in concert to accomplish innovation goals that may have great economic significance. Despite their importance, empirical work is scarce, and theoretical work has taken either the self-interest or the communal view to ...

Abstract: Some believe that people act in self-interest and have limited ability to cooperate, unless coerced by powers such as corporate supervisors or government officials. Others have challenged this view. An excellent opportunity to contrast these views is on the internet, which has enabled new venues for interaction and cooperation. Here I study an internet-based organization that facilitates the transfer (“sharing”) of digital goods. In this field setting I document altruistic behavior that is naturally occurring, intended, and stable. People ...

We describe a simulation that implements a framework of knowledge exchange contexts that crosses three types of exchange modes (spot exchange, social exchange, generalized exchange) with two types of interaction histories (existing ties, absence of history). These generate six categories of exchanges. A key type of exchange in this framework involves performative ties, where interactions between previously unacquainted partners occur

The actions of collectives who primarily meet on-line have recently captured the attention of the media, general public, business executives, and academics. File-sharing, open-source, and computer viruses are all carried out by loosely bounded collectives, rather than by firms or other formal organizations. These collectives operate in concert to accomplish innovation goals that may have great economic significance. Despite their

Sheen S. Levine, Trish Gorman, and Michael J. Prietula study how corporate performance is affected by peer- to- peer sharing, instances when people supplement their knowledge by interacting with others. Popular wisdom holds that such interaction benefits performance unequivocally, but the authors find otherwise. Combining qualitative fieldwork – interviews, observation, and document analysis – with computational modeling, they show that sharing can benefit performance, matter little, or even harm it. The effect of sharing on performance depends on a least three variables (and likely more): the learning capacity of individuals in the organization, the state of organizational memory, and turbulence in the competitive environment. The findings suggest that the effects of interaction on innovation are neither pure nor simple.

When does knowledge transfer benefit performance? Combining field data from a global consulting firm with an agent-based model, we examine how efforts to supplement one's knowledge from coworkers interact with individual, organizational, and environmental characteristics to impact organizational performance. We find that once cost and interpersonal exchange are included in the analysis, the impact of knowledge transfer is highly contingent. Depending on specific characteristics and circumstances, knowledge transfer can better, matter little to, or even harm performance. Three illustrative studies clarify puzzling past results and offer specific boundary conditions: (1) At the individual level, better organizational support for employee learning diminishes the benefit of knowledge transfer for organizational performance. (2) At the organization level, broader access to organizational memory makes global knowledge transfer less beneficial to performance. (3) When the organizational environment becomes more turbulent, the organizational performance benefits of knowledge transfer decrease. The findings imply that organizations may forgo investments in both organizational memory and knowledge exchange, that wide-ranging knowledge exchange may be unimportant or even harmful for performance, and that organizations operating in turbulent environments may find that investment in knowledge exchange undermines performance rather than enhances it. At a time when practitioners are urged to make investments in facilitating knowledge transfer and collaboration, appreciation of the complex relationship between knowledge transfer and performance will help in reaping benefits while avoiding liabilities.

In this study, we examine three types of conflict (task, relationship, and process) and four dimensions of conflict (emotions, norms, resolution efficacy, and importance) in decision making groups.We also investigate emergent states (e.g., trust, respect, cohesiveness; Marks et al. 2001; Acad Manag Rev 26: 530–547) as mediating the effects of the conflict types and dimensions on group outcomes (productivity and viability). All three types of conflict decreased positive emergent states in groups and this led to a decrease in group viability (the ability of a team to retain its members through their satisfaction and willingness to continue working together; Balkundi and Harrison 2006; Acad Manag J 49: 49–68). This effect was alleviated by resolution efficacy (the belief that the conflict can be easily resolved) regarding process conflict, but could be exacerbated by any negative emotion associated with relationship conflict. Norms that encouraged task conflict also increased positive emergent states within groups, which marginally and positively influenced group performance.

The actions of collectives who primarily meet on-line have recently captured the attention of the media, general public, business executives, and academics. File-sharing, open-source, and computer viruses are all carried out by loosely bounded collectives, rather than by firms or other formal organizations. These collectives operate in concert to accomplish innovation goals that may have great economic significance. Despite their importance, empirical work is scarce, and theoretical work has taken either the self-interest or the communal view to explain contributions. We point out the logical deficiencies and continue empirically through original data on a collective devoted to the sharing of digital music, which does not fit neatly in either explanation. To account for the survival and effectiveness of these collectives, we offer a four legged framework that draws on research in economic sociology and behavioral economics. The suggested framework fits more phenomenon than previous explanations and can easily produce refutable propositions.

Individual and organizational actors enter into a large number of relationships that include benefiting others without ensuring the equality of reciprocal benefits. We suggest that actors have evolved mechanisms that guide them in the choice of exchange partners, even without conscious calculation or bookkeeping of gain and loss. One such mechanism directs actors to membership in clusters, which are homogeneous groups of actors densely connected among themselves and only loosely connected to other groups. We suggest that clusters offer network externalities, which are not possible in sparse networks, thus conferring cascading benefits on the actors contained in those clusters. Using this logic, one can understand the omnipresence of clustering in social networks of individuals and firms. We review the benefits and challenges associated with clustering and use the logic of cascading benefits to derive empirical predictions.

Price bubbles remain a puzzle for economic theory, particularly given their appearance in experimental markets with high efficiency and minimized uncertainty and noise. We propose that bubbles are caused by the institutionalization of social norms, when individuals observe and adopt the behavior of others. Explanations of bounded rationality or individual bias appear insufficient as we show experimentally that (1) participants' pricing skills are better ex-ante than ex-post and (2) that individual discrepancies between intrinsic values and market prices become increasingly serially correlated during trading. We also find no support for the Greater Fool explanation.

Abstract Although Knowledge has grown to occupy a major role in the discussion on firm performance, we currently know little about the micro-processes involved in search and transfer of knowledge. Social network theory, useful elsewhere, is mostly silent about network evolution and dynamics. Drawing on extensive fieldwork in multiple offices of a large, multinational professional service firm, we identify the surprising role of knowledge transactions between unacquainted and unequal employees. We present the minutiae of ...

Generalized exchange is a common practice with wide-ranging implications. Yet it remains a puzzle for theories of rational choice, social exchange, and evolutionary biology. Prior investigations focus on mechanisms developed or tested in isolation, and almost all assume that social preferences are homogenous. This article presents and tests an integrated model of generalized exchange that combines strategic reputation building, fairness-based selective-giving, the obligation to pay it forward, and heterogeneous social preferences (values). Using laboratory experiments, we show that each mechanism is robust: each has significant effects even when we include all four mechanisms in the model and control for other factors. However, some mechanisms have more influence than others, and different combinations of mechanisms yield a wide range of generalized exchange. Overall, generalized exchange is a collective result of people who strive to increase their resources, make decisions contingent on the visibility of their actions and on the behavior of others with whom they interact, reciprocate to a system from which they benefited, and behave consistently with their values. These values moderate how people respond to the presence or absence of reputational incentives, as well as the extent to which they reward generous behavior and punish stingy behavior.

Last week’s decision by a federal judge in California casts a heavy shadow on the viability of Napster. But with or without Napster, on-line sharing is not about to disappear. Sharing of digital goods among Internet users has existed long before Napster was conceived, and it is likely to keep on troubling music companies, film studios, book publishers, and other owners of digitizable content.

Over the past few months we have all heard a great deal about Napster. It has been called everything from "a web site for downloading MP3s" to a vehicle for "duplicating copyrighted music" to "a place for trading files". None of these descriptions is fully correct. In reality, Napster is a piece of software that, once installed on your machine, enables you to search and download music from other people’s computers. At the same time, you define which parts of your hard drive are open for sharing. Whatever you choose to offer is accessible to any other user, and you can’t limit sharing just to specific people, such as friends or acquaintances.

Moreover, taking files doesn’t carry a debt, and one can download, or share, as much as one wishes. In fact, whatever you share quickly becomes a public good. The only centralized function is the database, located on Napster’s main computer (server), which contains a list of all the files available for download and their locations.

The technology itself isn’t revolutionary. In fact, it is very similar to the technology that was used to create the Internet in the first place. This is not a coincidence. The Internet was built in a collective effort, and content was meant to be free and accessible to all users –and this is the reason that on-line security is so problematic. Only in the last few years, as the Internet has been opened to the general public, has it become known as a platform for profit-making (potentially, at least) ventures.

But in spite of the hoopla around e-commerce, most of the Internet is still free for all. Want to know how to breed hamsters or how to mix an "Americano" cocktail? Just search the Internet; some good soul has probably put it up somewhere. Napster’s main contribution has been to put a user-friendly interface on the sharing of music files.
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It would be wrong to attribute Napster’s success to mere technological advancement or the ambition of any single software developer or financier. First and foremost, this is a social phenomenon. Even if all the technology was in place, Napster wouldn’t have existed without millions of individuals who were willing to open their computers to the world, welcoming anyone to search and take whatever they can find. This is voluntary, not-for-profit sharing of digital goods among complete strangers. And this is also what separates on-line sharing from buddies who exchange music cassettes, from Web sites that offer free music paid for by advertising, and from small time crooks that duplicate CDs to sell on a street corner. On-line sharing should be seen for what it is -- an almost instinctive behavior of many Internet users.

Just as Napster wasn’t a technological breakthrough, it also wasn’t a bright business idea. In its present form, it would have had tremendous difficulties turning a profit, because it was born as an innovation by eager college students and money making wasn’t initially a goal. In fact, the belated attempt to monetize its popularity forced Napster to become a corporation, thus making it an easy target for the music companies.

Music industry executives, blind to the social trends behind the phenomenon, have been quick to draw the legal gun, and they have won temporary relief from Napster. The distributed nature of the Internet, however, makes it tough to enforce any court ruling, and the movement towards on-line sharing, just like the mythological Hydra, is likely to grow two heads for each one that is stricken down.

Whether Napster survives is secondary. On-line sharing will clearly remain a strong trend among savvy Internet users. Moreover, the music industry might miss Napster soon. Because immediately after the court ordered a practical shut down of Napster, many of its devoted users fled to look for alternatives. And those were just around the corner. Two prominent alternatives are Gnutella, a program that was written by two mischievous AOL programmers, and Freenet – which was specifically designed for guerrilla operations. Unlike Napster and Gnutella, Freenet was developed with an explicit anti-copyright, "cyber liberty" ideology. It uses a sophisticated encryption mechanism that makes it impossible to know who offers what, and where the files are actually stored. It is practically impossible to shut down.

These two pieces of software were written not for making money, but for supporting the cause of on-line sharing, and they allow users to share anything digital, including DVD movies and electronic books.

Dire straits await the oblivious film studios and music companies, who are likely to lose this battle—not because their case is unjust, but because they do not understand what stimulates this popular movement. It thrives on an ethic that encourages sharing and disdains trading, an ethic that creates huge collectives of people who have never met, but still feel compelled to "give something back" to their virtual communities. The same ethic of cooperation has turned Linux into a viable threat to Microsoft’s Windows.

The Internet allowed us to order pet food on-line and to auction surplus widgets instantly, but this was still pretty much "business as usual" for everybody. Now we are about to witness a dramatic development in the market for anything that is digital, or can become digital. Since information that can become digital – music, videos, books – can become free, shutting down web sites, outlawing software, or even selling digital music on-line will not eliminate sharing.

Music companies, film studios, book publishers, and all owners of digitizable content will have to rethink their raison d’être if they wish to survive. It will not be easy, but it is possible.

Abstract We describe a simulation that implements a framework of knowledge exchange contexts that crosses three types of exchange modes (spot exchange, social exchange, generalized exchange) with two types of interaction histories (existing ties, absence of history). These generate six categories of exchanges.

Abstract Although Knowledge has grown to occupy a major role in the discussion on firm performance, We currently know little about the micro-processes involved in an intra-organizational search and transfer of knowledge. Drawing on extensive fieldwork in a large, multinational professional service firm, we identify a frequent phenomenon in which employees successfully extend ties to unacquainted others, bypassing direct and indirect network ties altogether.

ABSTRACT This paper investigates the patenting activities of firms in the imaging sector by constructing its so called" technology space" as platform of bundled knowledge that presents incentives for strategic collaboration. We identify the relative centrality of firms to make inferences about their organizational status to account for their propensity to engage in strategic alliances.