ECON8180 Economic Analysis of the Digital Economy (S1 2020)

Take-home exam (A3)

This assessment is worth 35% of your final grade for the course

Imagine you are working as a researcher at an online social network (OSN) – a social network
service (similar to Facebook). Your team leader knows you studied economics at ANU and is
looking to you to provide economic analysis relating to several aspects of the business. Draw upon
what you have learned in this course to answer the following questions. You are expected to provide
original insights/analysis in a way that demonstrates your understanding of the course. Where
useful, you should draw on the relevant readings (especially if they were highlighted in the lecture
or focused on in tutorials).

You are expected to work on this exam by yourself! If there is evidence of collaboration between
students, this will be dealt with as an academic integrity matter.
Write your answers in your own words. Do not copy/paste from the lecture notes or any other
source: you will be marked down for doing this, and it might be dealt with as an academic integrity
matter.

Part A (50% of total for exam)

Answer FOUR of the following questions. Note that each answer should be brief – a maximum
of 2-3 well-written paragraphs should be sufficient.

Q1. Value of time spent on an OSN

Q1a. How have economists attempted to estimate the value of time people spend on an OSN?
Q1b. How might a person use cost-benefit analysis to decide whether or not to contribute social
media content? As a concrete example, perform an analysis of how someone might freely decide
to help people in a social media group devoted to secondary or post-secondary school learning.

Q2. Online reputation

The recent Black Lives Matter global protests against discrimination and racism has led to
reputational problems for firms that use your OSN to promote their brand. Specifically, companies
have been attacked online for a perceived lack of diversity, or “tone deaf”, racist marketing. How
might an economist think about the effects of reputation stemming from OSN use in this case, and
what can companies do to mitigate any negative effects? Remember, Twitter never forgets!

Q3. Blockchain/DLT
The CEO of your company is also a business mentor for a new technology startup company whose
founder is a from a minority ethnic group. Your CEO has asked you how using a distributed ledger
technology’s cryptographically-supported token, or “coin”, may help to minimise the potential
impact of racial bias during fundraising for a minority ethnic-owned startup company. Advise your
CEO, drawing on what you have learned about DLTs in this course.

Semester 1, 2020 ECON8180 Economic Analysis of the Digital Economy (ANU)

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Q4. Peer production or crowd sourcing?
Using Benkler’s definitions, is the following an example of peer production or crowd-sourcing?
Explain your answer, and state any additional information you may need to make a decision.
University researchers are using the OSN to construct a database of local municipal laws that are
racist or exhibit ethnic bias. Via the OSN, people can contribute information to this database e.g.
when they or people they know have been disadvantaged by such laws.

Q5. Misinformation
Your OSN has been accused of helping to diffuse misinformation relating to fake reports of
violence committed by police and BLM protesters. Drawing on relevant research from the course,
discuss how social media platform features might contribute to the problem of misinformation.

Part B (50% of total for exam)

Answer THREE of the following questions.

Q6. OSN membership and activity

The following is a plot of the time series of the cumulative number of members of your OSN, from
the year it first opened for business up until 2012:

The highlighted area “A” shows when growth of membership was slow, before it “took off” and
many people started using your OSN.
Q6a. Use economic analysis to explain why growth in your OSN was slow to begin with: what
did your company do to “incentivise” people to join your OSN, and why was this necessary?

You have been provided with a dataset with two variables: (1) the total number of “likes” each user
has received for all of the posts they authored over the past year; and (2) the total number of posts
that each user authored over the past year.
Q6b. Of these two variables, which one is most likely to be distributed according to a power law,
and why? Your answer should include an intuitive description of what a power law distribution
is.

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Q7. News channel
In your OSN, users can subscribe to news channels based on topic (e.g. sport, politics etc.) or news
brand (e.g. The Australian, The New York Times etc.). By subscribing to news channels, the user
will then receive posts containing different news stories.
You have been provided with a dataset on news channel activity, and you find:
 In 2010 the bottom 90% of news brands (based on numbers of subscribers) accounted for
12% of all subscriptions, and there were 380 different news brands available
 In 2020 the bottom 90% of news brands (based on numbers of subscribers) accounted for
7% of all subscriptions, and there were 560 news brands available

Q7a. Using the quantitative measures for examining the Long Tail Proposition introduced in this
course, what can you conclude about changes in the diversity of news consumption over the past
10 years? Your answer should clearly explain any measures you use, and any assumptions you
may need to make.

Q7b. Your company is planning on introducing a recommender system for the news channels.
Explain briefly the two types of recommender systems introduced in this course, and how a
recommender system could be set up for news channels. What do you think might be the impact
of the recommender system on the diversity of news consumption, and how is this relevant to
current debates about social media, misinformation and polarisation?

Q8. Online advertising

Your company has monetised the OSN via advertising, and you recently conducted an experiment
for testing the effectiveness of a new online advertising campaign. Specifically, advertisements for
goods/services from minority-owned businesses were shown to random visitors of influencer
profiles on your OSN. The details of your experiment are as follows:
 400,000 unique visitors to influencer profiles, which were split evenly between the test
(exposed to advertisement) and control (unexposed) groups
 The mean per person sales for the exposed group was $8 greater than that of the unexposed
group
 The sample variance of sales was $150,000

Q8a. With above data from the experiment, evaluate the impact of the online advertising
(including conducting an appropriate hypothesis test and analysis of explained variance). What is
your advice to the company regarding the effectiveness of the advertising campaign? Explain
your answer.

Q8b. Your company also has plans to display the advertisements for goods/services from
minority-owned businesses on the profile pages of ‘regular’ (i.e. non-influencer) OSN users (the
users will be targeted based on what they write about themselves in their profile). Briefly discuss
the societal costs and benefits of this advertising approach, where ‘costs’ include the reduced
privacy OSN users have when their social media profiles are used for advertising.

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Q9. Influencers and networks
The following is an adjacency matrix showing the network ties between 8 OSN users. A zero (one)
in cell i, j indicates nodes i and j are not connected (connected). Note that in this network, the ties or
edges are undirected.
1 2 3 4 5 6 7 8
1 0 1 0 0 0 0 0 0
2 0 1 0 0 0 0 0
3 0 1 1 0 0 0
4 0 1 0 0 0
5 0 1 1 0
6 0 0 0
7 0 0
8 0

Q9a. If you were wanting to find the node with the highest betweenness centrality, which nodes
could you ignore i.e. they could not possibly have the highest betweenness centrality? Why can
you ignore these nodes?

Q9b. What node has the highest betweenness centrality? Calculate the betweenness centrality for
this node (and show your calculations). What node has the highest degree centrality?

Your company is developing a new service where it matches “influencers” with particular clients.
The following is a list of 3 influencers with their respective betweenness centrality (BC) and degree
centrality (DC):
BC DC
Influencer 1 9,000 15,000
Influencer 2 12,000 8,000
Influencer 2 5,000 7,000

You have two clients who want to use influencers to help them with two specific campaigns:
1) a social movement organisation is wanting to spread as widely and quickly as possible
information about worldwide BLM protests being held on a particular day;
2) a state government in the US is removing Confederate (US civil war) statues as a way of
convincing taxpayers that the state is sensitive to the BLM movement.

Q9c. Which influencer should be used for each campaign, and why?

Semester 1, 2020 ECON8180 Economic Analysis of the Digital Economy (ANU)

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