AbstractWe investigate the impact of network structures describing reciprocal influence-relationships between agents on their perceived ambiguity. We argue that, under specific assumptions, the potential complexity of the link-structures creates extra uncertainty or ambiguity over the "right" probability distribution to consider. This result affects the optimal equilibrium structures which arise in a dynamic game where the agents/nodes strategically rewire their links to minimize the perceived uncertainty. The model could explain specific network dynamics observed in markets with asymmetric or not perfect information on the partners' outcomes. For instance, we propose an interpretation of the dynamic of the European Interbank Market structure before and after the recent financial crisis.
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Bibliographic InfoPaper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 1303.
Date of creation: Feb 2013
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Find related papers by JEL classification:
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-04 (All new papers)
- NEP-BAN-2013-06-04 (Banking)
- NEP-GTH-2013-06-04 (Game Theory)
- NEP-MIC-2013-06-04 (Microeconomics)
- NEP-NET-2013-06-04 (Network Economics)
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