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Risk aversion and social networks

Author

Listed:
  • Marco van der Leij

    () (Universidad de Alicante)

  • Jaromir Kovarik

    (Universidad de Alicante)

Abstract

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.

Suggested Citation

  • Marco van der Leij & Jaromir Kovarik, 2012. "Risk aversion and social networks," Working Papers. Serie AD 2012-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2012-01
    as

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    References listed on IDEAS

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    Cited by:

    1. Menyashev, Rinat & Natkhov, Timur & Polishchuk, Leonid & Syunyaev, Georgiy, 2011. "New Institutional Economics: A state-of-the-art review for economic sociologists," economic sociology_the european electronic newsletter, Max Planck Institute for the Study of Societies, vol. 13(1), pages 12-21.
    2. Gallo Edoardo, 2012. "Small World Networks with Segregation Patterns and Brokers," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-46, September.

    More about this item

    Keywords

    Network formation; risk aversion; clustering coefficient; degree distribution;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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