Maybe the numbering is incorrect, since this is heavily related to volume 3. This is about Due Diligence Networks. I’ll start by copy-pasting a GTalk conversation with a friend last night. In fact, I think a number of concepts I want to explain here are there in the conversation. So I suppose it’ll be best if you read that conversation and then i put some brief notes.
me: hey dude
It will be interesting to model due diligence networks. As to how people try to find a link to the counterparty, and how many hops away they’ll find the counterparty. In this case, I was doing due diligence for a friend’s friend’s friend. And I asked my friend about his friend. So that makes it five nodes between the involved counterparties. Or a total of six degrees!
The book Six Degrees by Duncan Watts, which is responsible for introducing me to the world of social networks also talks about search heuristics that people use. So if you are to send a letter to a farmer in China, and at each step you need to send it to someone you know. Typically you will send it to a friend who you think knows someone in China. This friend will forward it to his friend in China. This guy in China will send it to someone he knows in the same province where the farmer lives. And so on.
So far I’ve been privy to two due diligences in the last six months. And both have followed similar paths. The guy who asked me to do the background check on S (above) was my classmate in IIT. So here is how it is likely to have flowed –
1. Girl broadcasts to her close friends saying she is looking to do a due diligence on this particular guy, and gives out some details
2. One of her friends knows one guy who went to the same college as the “target”. So asks him for DD, and it turns out that this guy doesn’t know the target
3. This friend had a classmate in college who was reputed to know everyone in the college. Legend has it that if you woke up this guy and told him the name of a hostel wing, he would start listing out the occupants of each room in the wing, in order. This guy, that is me, was known as “database” in IIT for this kind of fundaes. So he will surely know the target? So the girl’s friend’s friend asks me.
4. Obviously (i used to be a database, after all) I know the target. However, I’ve never really spoken to him and so don’t know enough about him to write a character certificate for him. But I know one guy very well, who I know used to hang out with the target. So I can surely ask him? What resulted is the conversation I’ve pasted above.
There was another due diligence process that I was part of a few months back. Again similar – I got into the loop because a friend didn’t know his classmate and wanted me to find a path to put due diligence on her. I remember doing similar things back in school also.
The thing with due diligence networks is that they are very hush-hush. Typically you won’t tell the person who is in front of you in the chain about the person behind you. Typically this is done so as to protect the identities of the diligent parties, but the side effect of this is that there is acute lack of data for research in this field.
I hereby call upon couples who successfully conducted due diligence on each other, and eventually got married, to share their experiences. To let us know how they went about the process. About how they figured out the path to the person whom they had to “check out”. I think there is a treasure trove of papers waiting to get written in this field.