ABSTRACT:The mixed empirical support for balance theory is often explained by recourse to competing mechanisms that reduce the total degree of balance in the network. These mechanisms (such as differential popularity and subgroup hostility) may depend on exogenous properties of the nodes. This paper offers an alternative explanation to violations of balance, according to which the local/myopic nature of sign adjustment in accordance with balance may reduce the global degree of balance and impede the formation of groups, whereas other mechanisms that rely on exogenous node properties (e.g., homophily) facilitate these processes. The paper describes a set of simulations designed to study the evolution of complete signed networks under a local sign-change regime, induced by structural balance, homophily and heterophobia. Tolerance for local violation of balance and homophily is allowed to vary with a consequent impact upon the global degree of balance and group formation processes. We find the conditions under which the pressure towards local homophily and balance operate against each other so that homophily adjusts towards group formation but balance undermines this process.

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We examine how communication, evaluation and decision-making practices among competing market actors contribute to the establishment of herding and whether this has impact on market-wide phenomena such as prices and risk. Data are collected from interviews and observations with hedge fund industry participants in Europe, the USA and Asia. We examine both contemporaneous and biographical data, finding that decisionmaking relies on an elaborate two-tiered structure of connections among hedge fund managers and between them and brokers. This structure is underpinned by idea sharing and development between competing hedge funds leading to 'expertise-based' herding and an increased probability of over-embeddedness. We subsequently present a case study demonstrating the role that communication between competing hedge funds plays in the creation of herding and show that such trades affect prices by introducing an additional risk: the disregarding of information from sources outside the trusted connections.

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The article explores the role that subjective evidence of causality and associated counterfactuals and counterpotentials might play in the social sciences where comparative cases are scarce. This scarcity rules out statistical inference based upon frequencies and usually invites in-depth ethnographic studies. Thus, if causality is to be preserved in such situations, a conception of ethnographic causal inference is required. Ethnographic causality inverts the standard statistical concept of causal explanation in observational studies, whereby comparison and generalization, across a sample of cases, are both necessary prerequisites for any causal inference. Ethnographic causality allows, in contrast, for causal explanation prior to any subsequent comparison or generalization.