A triad is any triple of nodes (actors) (A, B, C). In a directed network there are sixteen possible kinds of triads. A triad is said to be transitive if there is a link (tie) from A to B (AB) and a link from B to C (BC), then there is also a link from A to C (AC).
Transitivity is defined as the ratio of number of transitive triads (AB, BC and AC) to the total number of those triads (DE and EF) where a third link (DF) would make it transitive.
Pros & Cons
Algorithm must be applied to unweighted (binary) directed networks. Self-loops are ignored in the calculation.
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Hanneman, Robert A. and Mark Riddle. 2005. Introduction to social network methods. Riverside, CA: University of California, Riverside.