The Rules of Contagion: Why Things Spread - and Why They Stop

by Adam Kucharski

Mathematical models like Ross’s often have a reputation for being opaque or complicated. But in essence, a model is just a simplification of the world, designed to help us understand what might happen in a given situation. Mechanistic models are particularly useful for questions that we can’t answer with experiments.

Correlation isn’t just some niche topic to keep a mathematically minded intern occupied. It turns out to be crucial for understanding why 2008 would end with a full-blown financial crisis. It can also help explain how contagion spreads more generally, from social behaviour to sexually transmitted infections.

A long-standing idea in finance is that banks can use diversification to reduce their overall risk. By holding a range of investments, individual risks will balance each other out, improving the bank’s stability. In the lead up to 2008, most banks had adopted this approach to investment. They’d also chosen to do it in the same way, chasing the same types of assets and investment ideas. Although each individual bank had diversified their investments, there was little diversity in the way they had collectively done it.

When the outbreak started in Mexico in March, it quickly reached faraway places like China, but took longer to appear in nearby countries such as Barbados. The reason? If we define ‘near’ and ‘far’ in terms of locations on a map, we’re using the wrong notion of distance. Infections are spread by people, and there are more major flight routes linking Mexico and China – such as those via London – than those connecting Mexico with places like Barbados.