Networks and strongEconomicstrong Behavior - Stanford University.pdf

Networks and Economic Behavior Matthew O. Jackson October 1, 2008 To Appear: Annual Review of Economics, Vol. 1, pp. 489-513, 2009 Abstract: Recent analyses of social networks, both empirical and theoretical, are discussed, with a focus on how social networks influence economic behavior, as well as how social networks form. Some challenges of such research are discussed as are some of the important considerations for the literature going forward. Keywords: Networks, Social Networks, Economic Networks Department of Economics, Stanford University, Stanford, CA 94305-6072, USA (jacksonm@) /~jacksonm and the Santa Fe Institute. Financial support under NSF grant SES-0647867 is gratefully acknowledged. 1. Introduction Social networking web sites such as Facebook, MySpace and LinkedIn have made social networks more prominent than ever. Even though these and the many other forms of networked communications that have emerged with increased computerization provide a wealth of rich data for analysis, social networks are not new to economic interaction, nor are they new to researchers. These prominent examples simply make more broadly evident the importance of research on networked interactions and the opportunities for such scientific inquiry. To some extent, the increased attention to social structure by economists parallels the growth of behavioral economics. Some of the interest in behavioral economics stems from the realization that psychological factors and context can be important determinants of decision making and ultimately of economic behavior. Similarly, the interest in social networks and the interaction patterns underlying economic activity stems from the realization that social context is an important determinant of economic behavior. The realization that social factors are critical to understan