Risk Aversion and Social Networks

Jaromír Kovářík and Marco van der Leij

No 11-072/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper resulted in a publication in the 'Review of Network Economics' .

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. The model predicts that an agent's risk aversion is correlated with her network clustering coefficients, but not with her degree. We discover a mechanism that generates a correlation between network position and payoffs of individuals. Moreover, we show how the generated network architecture depends on the uncertainty in the environment it is embedded in.

Keywords: Network formation; risk aversion; clustering coefficient; local/global search (search for similar items in EconPapers)
JEL-codes: D81 D83 D85 (search for similar items in EconPapers)
Date: 2011-04-21
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Risk Aversion and Social Networks (2014)
Working Paper: Risk aversion and social networks (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20110072

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