Financial Econometrics and Empirical Market Microstructure

Social Diffusion of Disruptive Information

As we have described, social imitation is an important amplifier in markets. As in fashion, new themes constantly emerge and some cross critical points to broad adoption due to social imitation. The Technology Adoption Lifecycle is a sociological model about how disruptive innovation diffuses in the marketplace. See Geoffrey Moore’s seminal “Crossing the Chasm” (1999) for a full description of this punctuated equilibrium model. Disruptive innovation does not diffuse gradually. Rather, the market remains in stasis as pressure builds up until the conditions are right for a jump to Early Adopters.

Malcolm Gladwell’s The Tipping Point: How Little Things Can Make a Big Difference (2000) describes Early Adopters as Connectors (social network hubs), Mavens (information specialists), and Sales People (persuaders). Early Adopters play a crucial role in the dissemination of disruptive innovation. It is only after Early Adopters buy into a theme that a tipping point is crossed, which sets off social amplification (imitation) that results in adoption by the Early and Late Majority. How do entrepreneurs know when they when their disruptive innovation is crossing the chasm? It feels like being “Inside The Tornado” (the title of Moore’s follow-up book): swept up by super-exponential change and turbulence (Moore 2004).

Figure 3 illustrates the epidemiological jump process of social diffusion of disruptive innovation.