Strategic complementarity refers to how the value of a behavior is boosted as more people adopt it. This is easy to understand when looking at the early stages of the diffusion of fax machines. These devices were of limited utility until a sufficiently large pool of adopters was built up. Once critical mass was established, people increasingly realized the benefits and value of the devices, thereby encouraging more widespread adoption. This created a positive feedback loop that amplified the ensuing complex contagion. That is the effect of credibility: The more people adopt a behavior, an idea, or a technology, the more inclined others will be to consider it worthy of adoption.
Legitimacy relates to the endorsement of one’s behavior by peers and significant others. When a behavior is adopted by one’s social network, its social approval will increase, while sanctions will correspondingly decrease. For example, anti-maskers who surround themselves with like-minded friends are emboldened in their anti-social behavior because they are never taken to task for not donning face coverings. The fourth factor, emotional contagion, explains why outlandish conspiracy theories can propagate with ferocity, such as among QAnon supporters. The psychological excitement from engaging in a collective behavior, such as spreading sensationalist news, grows as more people buy into it and mutually reinforce each other’s emotional arousal.
All four factors described above were complementary, self-reinforcing pathways in spreading the GameStop complex contagion. As Keith Gill’s unorthodox advice gained traction and more users made handsome financial gains as a result, strategic complementarity was achieved. With these early successes gaining widespread visibility over a range of social media platforms, the credibility of buying GameStop was further amplified. Whereas reckless financial investments often invite social sanction, the GameStop mob was legitimized in their actions by mutual reinforcement as they aped the behavior of Gill and his acolytes. Wrote one Reddit user: “Your (Gill’s) steady hand convinced many of us to not only buy but hold. Your example literally changed the lives of thousands of ordinary normal people”.
Furthermore, the emotional contagion was inflamed by the excitement of sudden financial windfalls and the pride of taking down Wall Street giants. With these four factors at play, more amateur investors became swept up in the GameStop fervor, causing the company’s stocks to rally on the back of this complex contagion.
With mobile and social media connectivity intensifying amid the Covid-19 pandemic, retail-investor swarms can emerge around trending stocks in markets anywhere. In Asia in particular, consumers have embraced digital technology and are extremely receptive to using digital channels for their financial needs. South Korea’s “ants” swap tips on platforms such as Telegram and Kakao Talk, Thailand’s “moths” swarm around LINE, Pantip and more recently Clubhouse, while in Japan, 2channel reigns supreme. Such social media connectivity can be empowering but is highly open to manipulation, too. In South Korea, some unscrupulous online stock clubs have schemed to mislead small-time investors into buying worthless stocks before dumping them.
As complex contagions gain momentum in a densely connected world, financial regulators must develop ways to douse technologically charged stock-trading mania and manage extreme market volatility. If they fail to do so, vulnerable retail investors may be burnt in this digital gold rush.