Risk aversion and social networks

• Jaromir Kovarik ^[1] ; Marco Van der Leij ^[2]
  1. [1] Universidad del País Vasco/Euskal Herriko Unibertsitatea

     Universidad del País Vasco/Euskal Herriko Unibertsitatea

     Leioa, España

     
  2. [2] University of Amsterdam

     University of Amsterdam

     Países Bajos

     
• Localización: Working papers = Documentos de trabajo: Serie AD, Nº. 1, 2012, págs. 1-28
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • Agents involved in the formation of a social or economic network typically face uncertainty about the benefits of creating a link. However, the interplay of such uncertainty and risk attitudes has been neglected in the network formation literature. We propose a dynamic network formation model that builds on standard microeconomic concepts of utility maximization, incomplete information, and risk aversion. With our model, we discover a new mechanism that generates a correlation between network position and payoffs of individuals. Second, we show how the generated network architecture depends on the uncertainty in the environment it is embedded in.