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Network structure and strategic investments: An experimental analysis

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  • Rosenkranz, Stephanie
  • Weitzel, Utz

Abstract

This paper experimentally analyzes the effect of network structures on individualsʼ decisions in a game of strategic substitutes. The theoretical basis for our experiment is the model of Bramoullé and Kranton (2007). As predicted, we find that individuals are able to coordinate on equilibria, but that coordination strongly depends on the network structure. Despite frequent coordination failures, in graphs of size N=4 equilibrium play seems easier on network architectures with high (low) density and low (high) centrality. If play converges, it almost exclusively does so towards the predicted equilibria. Theoretical results with respect to welfare are also confirmed. Next to global graph structural properties we also explore the effects of local and individual factors. We find that behavior on networks is affected by the number of (direct) neighbors, but not by individualsʼ risk attitudes. Apparently, the global and the local structure of a network does not leave much explanatory room for individual effects that pertain to risk taking.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 75 (2012)
Issue (Month): 2 ()
Pages: 898-920

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Handle: RePEc:eee:gamebe:v:75:y:2012:i:2:p:898-920

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Social networks; Experiment; Coordination; Strategic substitutes; Risk aversion;

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References

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Citations

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Cited by:
  1. Gary Charness & Francesco Feri & Miguel A. Meléndez-Jiménez & Matthias Sutter, 2014. "Experimental games on networks: Underpinnings of behavior and equilibrium selection," Working Papers 2014-14, Faculty of Economics and Statistics, University of Innsbruck.
  2. Sanjeev Goyal & Stephanie Rosenkranz & Utz Weitzel & Vincent Buskens, 2014. "Individual Search and Social Networks," Working Papers 2014.49, Fondazione Eni Enrico Mattei.
  3. Boris van Leeuwen & Theo Offerman & Arthur Schram, 2013. "Superstars need Social Benefits: An Experiment on Network Formation," Tinbergen Institute Discussion Papers 13-112/I, Tinbergen Institute.
  4. Charness, Gary & Feri, Francesco & Meléndez-Jiménez, Miguel A. & Sutter, Matthias, 2014. "Experimental Games on Networks: Underpinnings of Behavior and Equilibrium Selection," IZA Discussion Papers 8104, Institute for the Study of Labor (IZA).

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