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Network Structure in a Link-formation Game: An Experimental Study

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  • Alexander Elbittar
  • Rodrigo Harrison
  • Roberto Muñoz

Abstract

Network formation is frequently modeled using link-formation games and typically present a multiplicity of Nash equilibria. Cooperative refinements - such as strong or coalitional proof Nash equilibria - have been the standard tool used for equilibrium selection in these games. Non-cooperative refinements derived from the theory of global games have shown also that, for a class of payoff functions, multiplicity of equilibria disappears when the game is perturbed by introducing small amounts of incomplete information. We conducted a laboratory study evaluating the predictive power of each of these refinements in an illustrative link-formation game. Compared with cooperative game solutions, the global game approach did significantly better at predicting the strategies played by individuals in the experiment.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 122247000000001708.

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Date of creation: 19 Nov 2007
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Handle: RePEc:cla:levarc:122247000000001708

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  1. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information, EconWPA 0303011, EconWPA.
  2. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium Selection in Global Games with Strategic Complementarities," Staff General Research Papers, Iowa State University, Department of Economics 11920, Iowa State University, Department of Economics.
  3. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, Elsevier, vol. 71(2), pages 261-287, August.
  4. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  5. Dutta, B. & Nouweland, C.G.A.M. van den & Tijs, S.H., 1995. "Link formation in cooperative situations," Discussion Paper, Tilburg University, Center for Economic Research 1995-35, Tilburg University, Center for Economic Research.
  6. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica, Econometric Society, Econometric Society, vol. 72(5), pages 1583-1599, 09.
  7. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, Elsevier, vol. 71(1), pages 44-74, October.
  8. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics, EconWPA 0211011, EconWPA.
  9. Jackson, Matthew O. & van den Nouweland, Anne, 2005. "Strongly stable networks," Games and Economic Behavior, Elsevier, Elsevier, vol. 51(2), pages 420-444, May.
  10. Falk Armin & Kosfeld Michael, 2012. "It's all about Connections: Evidence on Network Formation," Review of Network Economics, De Gruyter, De Gruyter, vol. 11(3), pages 1-36, September.
  11. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1181-1230, September.
  12. Cary Deck & Cathleen Johnson, 2004. "Link bidding in laboratory networks," Review of Economic Design, Springer, Springer, vol. 8(4), pages 359-372, 04.
  13. Callander, Steven & Plott, Charles R., 2005. "Principles of network development and evolution: an experimental study," Journal of Public Economics, Elsevier, Elsevier, vol. 89(8), pages 1469-1495, August.
  14. Rodrigo Harrison & Roberto Muñoz, 2008. "Stability and equilibrium selection in a link formation game," Economic Theory, Springer, Springer, vol. 37(2), pages 335-345, November.
  15. Rosemarie Nagel & Antonio Cabrales & Roc Armenter, 2002. "Equilibrium selection through incomplete information in coordination games: An experimental study," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 601, Department of Economics and Business, Universitat Pompeu Fabra.
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Cited by:
  1. Rodrigo Harrison & Roberto Muñoz, 2008. "Stability and equilibrium selection in a link formation game," Economic Theory, Springer, Springer, vol. 37(2), pages 335-345, November.

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