INDIVIDUAL RISK PREFERENCES AND COLLECTIVE OUTCOMES IN THE EVOLUTION OF EXCHANGE NETWORKS

Abstract

Recent research argues that individual risk aversion favors cooperation in social dilemmas. The argument focuses on conditional cooperation in repeated interaction. The more risk averse actors are, the less they are inclined to put at risk ongoing cooperative relationships by attempts at unilateral exploitation. I argue that this reasoning may not suffice to capture risk effects in exchange networks, where actors face both decisions about cooperation and decisions about selection of new partners. I present a model that combines both decisions. Consistent with previous analyses, the model predicts that individual risk aversion favors rational cooperation in ongoing dyadic exchanges. However, simulations also reveal that risk aversion may negatively affect cooperation through reduced mobility in partner search. If actors consider partner change as risky, then risk-averse actors may stick to sub-optimal relationships, even if better alternatives are available that allow for higher levels of cooperative exchanges. Further simulations show nonlinear effects of individual risk preferences on the density and efficiency of exchange networks.