Strategic Default in the Context of a Social Network: An Epidemiological Approach

62 Pages Posted: 17 Nov 2011

See all articles by Michael Seiler

Michael Seiler

College of William and Mary - Finance

Andrew Collins

Old Dominion University

Nina H. Fefferman

affiliation not provided to SSRN

Date Written: November 16, 2011

Abstract

The paper examines the impact of social networks on strategic default behavior. Given the difficulties in empirically modeling this phenomenon, the paper takes a simulation approach, utilizing techniques from epidemiology. The concept is that ideas can travel through a population in the same manner that a disease does. Homeowners learn about strategic default either from their neighbors or from real estate “mavens” who provide information, or in some cases misinformation. The modeling indicates that in fragile markets, advice by those considered to be experts can result in a flood of strategic defaults, causing a contagious downward spiral of home prices and potentially a market collapse.

Suggested Citation

Seiler, Michael and Collins, Andrew and Fefferman, Nina H., Strategic Default in the Context of a Social Network: An Epidemiological Approach (November 16, 2011). Research Institute for Housing America Research Paper No. 11-04. Available at SSRN: https://ssrn.com/abstract=1960725 or http://dx.doi.org/10.2139/ssrn.1960725

Michael Seiler (Contact Author)

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

Andrew Collins

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

Nina H. Fefferman

affiliation not provided to SSRN ( email )

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