Berkeley Economist Measures Trust in Social Networks

 CEU Alumni Adam Szeidl, assistant professor of economics at University of California, Berkeley, visited the university last week to present his new field research on how social networks determine lending practices among Peru’s poor population.

Szeidl (MA Economics 2000) is among a group of economics scholars from Yale, Harvard, and Iowa State University who have launched micro-finance field experiment projects in two Lima shantytowns in order to measure the importance of social networks and trust when borrowing money.

“Neoclassical economics emphasizes the role of prices as the determining factor in lending and borrowing money,” Szeidl explained. Sociologists, on the other hand, focus on “social capital,” he said, looking at how networks of friends, family and community can form an informal infrastructure of borrowing and lending money and resources.

Szeidl’s research is a type of experimental economics, a method of using field experiments to study and test economic questions and theories. “Experiments in the field are the only way to conduct this research,” Szeidl said, “because you can’t replicate social networks in a lab.”

The study found that both factors—prices and social relations—determine lending practices in Peruvian shantytowns, and that borrowers respond to interest rates but social connections are also important. The group published their initial findings in a 2009 paper, Measuring Trust in Peruvian Shantytowns, and a follow-up paper on the study’s findings is forthcoming in 2010. 

Szeidl received his PhD in Economics from Harvard University in 2004. He has been a visiting professor at New York University and Harvard, and has written and researched extensively on social capital and trust networks.