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Risk aversion and social networks

  • Marco van der Leij

    ()

    (Universidad de Alicante)

  • Jaromir Kovarik

    (Universidad de Alicante)

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.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2012-01.pdf
File Function: Fisrt version / Primera version, 2012
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2012-01.

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Length: 36 pages
Date of creation: Jan 2012
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2012-01
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  1. Matthew O. Jackson & Brian W. Rogers, 2005. "The Economics of Small Worlds," Game Theory and Information 0503004, EconWPA.
  2. David A. Jaeger & Holger Bonin & Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2007. "Direct Evidence on Risk Attitudes and Migration," CReAM Discussion Paper Series 0703, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
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