The social dynamics of diverse and closed networks

Inherent to the dynamics of social networks is a paradoxical trade-off between closed networks that promote cooper- ation and efficiency and diverse networks that are flexible to new resources and ideas. Since actors cannot simultaneously max- imize both facets of a network, this has created a sharp debate on the social capital performance of closed and diverse network relationships. Research on this social capital debate has often focused on these described network affects without explaining the origins and dynamics of network performance. This paper advances a cognitive diversity approach that is based upon the subjec- tive and alert behaviors of Austrian entrepreneurs. These are key causal drivers to this paper's theoretical model of social dynam- ics and performance of closed and diverse networks. Such network behavior is subsequently modeled as a Complex Adaptive system. Using agent-based simulation, an agent-based model of entrepreneurship and social network dynamics is constructed to test the relationships described by the proposed theoretical model. The simulation results support the described hypothesized relationships. These findings also suggest the benefits of closed and diverse networks are logically distinct and, thus, should not be viewed as an either-or phenomenon. Agent-based simulation results show entrepreneurs can construct a balanced network of closed and diverse networks to optimize the benefits of both networks.