Strategic connections in a hierarchical society: wedge between observed and fundamental valuations (Q2062241)

This paper looks into strategic connections in a hierarchical social network focusing on observed and fundamental valuations. The paper proposes a deterministic model of valuation in which valuation is derived from fundamentals and the interdependence. A payoff function is introduced based on the ranks in the hierarchy in the network. It is assumed that individuals in a social network derive values from linkages with others apart from their fundamental valuations. On the basis of the linear dependence model, the network effect is highlighted in the current model and it uses eigenvector centrality as a key measure. A new entrant will receive the highest centrality if it connects to the one with highest centrality in the network. Individuals are shown not to backward look to gauge whether an earlier decision was right or wrong. The network growth process is shown to be affected by the network structure. The model is illustrated numerically by studying the Indian board interlocking network.