Rearranging Attributes in Networked Economies

Abstract

This work studies an important departure from the classical networked economy. In the benchmark case, an external decision-making observer has full information about the networked economy. In this work, the observer does not have full information, yet must make decisions impacting the economy's agents. Specifically, the observer does not know how the attributes of the economy sit on the network's nodes. This work develops a complete, closed-form statistical approach that enables the observer to overcome this lack of information and still execute a decision. The observer must consider all possible arrangements of attributes on the network nodes. By exhaustively rearranging attributes, the observer can construct probability distributions that accurately characterize the economy. In this work, we first develop the necessary theoretical tools and we then show how the observer can employ these tools in the following settings: (1) education with peer effects, (2) consumption with network externalities, and (3) crime.