Network Formation in the Presence of Contagious Risk
Speaker: Jon Kleinberg , Cornell U.
Date: December 6 2011
Time: 4:15PM to 5:15PM
Location: 32-124
Host: Dana Moshkovitz, CSAIL, MIT
Contact: Be Blackburn, 3-6098, be@csail.mit.edu
Relevant URL: There are a number of domains where agents must collectively form a network in the face of the following trade-off: each agent receives benefits from the direct links it forms to others, but these links expose it to the risk of being hit by a cascading failure that might spread over multi-step paths. Financial contagion, epidemic disease, and the exposure of covert organizations to discovery are all settings in which such issues have been articulated.
Here we formulate a stylized model for this problem, and we provide characterizations of the agents' welfare under optimal structures as well as structures arising from strategic behavior. We find that optimal networks are situated very close to the emergence of a giant component in an underlying random graph, and networks arising from strategic behavior lie slightly further beyond this transition, at a point where most of the welfare available to the agents has been lost. Our analysis enables us to explore such issues as the trade-offs between clustered and anonymous market structures, and it exposes a fundamental sense in which very small amounts of ``over-linking'' in networks with contagious risk can have strong consequences for the welfare of the participants.
Joint work with Larry Blume, David Easley, Bobby Kleinberg, and Eva Tardos.
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