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Risk Taking over Networks: Insufficient Precautions

Speaker: Azarakhsh Malekian

February 14, 2013 - 4:00 p.m. to 5:00 p.m.
Location: TROY 2012
Hosted By: Dr. Elliot Anshelevich (x6491)


We live in a hyper connected world. But connectivity also brings the risk of contagious system failures. Therefore, all networks, including computer, communication, transportation and economic networks depend on some degree of security(precautionary) activities for their operation. In this talk, we introduce a theoretical model of the security investments in a network of interconnected agents. The network connections introduce the possibility of cascading failures due to an exogenous or endogenous attack depending on the profile of security investments by the agents. The general presumption in the literature, based on intuitive arguments or analysis of symmetric networks, is that because security investments create positive externalities on other agents, there will be underinvestment in security. We show that this reasoning is incomplete because of a first-order economic force: security investments are also strategic substitutes. In a general (nonsymmetric) network, this implies that underinvestment by some agents will encourage overinvestment by others. We demonstrate by means of examples that not only there can be overinvestment by some agents but also aggregate probabilities of infection can be lower in equilibrium compared to the social optimum. We then provide sufficient conditions for underinvestment. This requires both sufficiently convex cost functions (convexity alone is not enough) and networks that are either symmetric or locally tree-like. We also characterize the impact of network structure on equilibrium and optimal investments. Finally, we show that when the attack location is endogenized (by assuming that the attacker chooses a probability distribution over the location of the attack in order to maximize the aggregate infection), there is an additional incentive for overinvestment: greater investment by an agent shifts the attack to other parts of the network.


Azarakhsh Malekian is currently a postdoctoral associate at Massachusetts Institute of Technology. She received her Ph.D. in Computer Science from University of Maryland, College Park, advised by Prof. Samir Khuller, and her B.Sc. in Computer Engineering from Sharif University of Technology. Her main research is in algorithmic mechanism design, network economics, e-commerce, and optimization. She is the recipient of the best student paper award at FifthWorkshop on Internet and Network Economics (WINE) 2009 for her work on the "Troubled Assets Rescue Plan" Auction.

Last updated: Feb 06, 2013