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The Strategic Formation of Networks: Experimental Evidence

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  • Carrillo, Juan D
  • Gaduh, Arya

Abstract

We use a laboratory experiment to explore dynamic network formation in a six-player game where link creation requires mutual consent. The analysis of network outcomes suggests that the process tends to converge to the pairwise-stable (PWS) equilibrium when it exists and not to converge at all when it does not. When multiple PWS equilibria exist, subjects tend to coordinate on the high-payoff one. The analysis at the single choice level indicates that the percentage of myopically rational behavior is generally high. Deviations are more prevalent when actions are reversible, when marginal payoff losses are smaller and when deviations involve excessive links that can be removed unilaterally later on. There is, however, some heterogeneity across subjects.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8757.

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Date of creation: Jan 2012
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Handle: RePEc:cpr:ceprdp:8757

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Related research

Keywords: Laboratory experiments; Myopic rationality; Pairwise stable equilibria; Social networks;

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Cited by:
  1. Marco Mantovani & Georg Kirchsteiger & Ana Mauleon & Vincent Vannetelbosch, 2013. "Limited Farsightedness in Network Formation," Working Papers ECARES 2013/76051, ULB -- Universite Libre de Bruxelles.

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