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Learning, Network Formation and Coordination

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Author Info

  • Goyal, S.
  • Vega-Redondo, F.

Abstract

In many economic and social contexts, individual players choose their partners and also decide on a mode of behavior in interactions with these partners. This paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: we suppose that a player can establish ties with other players by investing in costly pair-wise links. We show that individual efforts to balance the costs and benefits of links sharply restrict the range of stable interaction architectures; equilibrium networks are either complete or have the star architecture. Moreover, the process of network formation has powerful effects on individual behavior: if costs of forming links are low then players coordinate on the risk-dominant action, while if costs of forming links are high then they coordinate on the efficient action.

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File URL: http://hdl.handle.net/1765/6931
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Bibliographic Info

Paper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 9954-/A.

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Date of creation: 10 Nov 2000
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Handle: RePEc:dgr:eureir:1765006931

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Web page: http://www.few.eur.nl/few

Related research

Keywords: learning; network formation; coordination;

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References

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  1. Joerg Oechssler, 1994. "Decentralization and the Coordination Problem," Game Theory and Information 9403004, EconWPA.
  2. Bergin, James & Lipman, Barton L, 1996. "Evolution with State-Dependent Mutations," Econometrica, Econometric Society, vol. 64(4), pages 943-56, July.
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  6. Galesloot, Bob M. & Goyal, Sanjeev, 1997. "Costs of flexibility and equilibrium selection," Journal of Mathematical Economics, Elsevier, vol. 28(3), pages 249-264, October.
  7. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  8. D. Canning, 2010. "Average Behavior in Learning Models," Levine's Working Paper Archive 490, David K. Levine.
  9. Jackson, Matthew O. & Watts, Alison, 2002. "On the formation of interaction networks in social coordination games," Games and Economic Behavior, Elsevier, vol. 41(2), pages 265-291, November.
  10. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
  11. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
    • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  12. Bhaskar, V & Vega-Redondo, F, 1996. "Migration and the Evolution of Conventions," UFAE and IAE Working Papers 354.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  13. Arthur J Robson & Fernando Vega-Redondo, 1999. "Efficient Equilibrium Selection in Evolutionary Games with Random Matching," Levine's Working Paper Archive 2112, David K. Levine.
  14. Matthew Haag & Roger Lagunoff, 2000. "social Norms, Local Interaction and Neighborhood Planning," Levine's Working Paper Archive 2049, David K. Levine.
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  17. Kandori Michihiro & Rob Rafael, 1995. "Evolution of Equilibria in the Long Run: A General Theory and Applications," Journal of Economic Theory, Elsevier, vol. 65(2), pages 383-414, April.
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  19. Franklin Allen & Douglas Gale, 1998. "Financial Contagion Journal of Political Economy," Center for Financial Institutions Working Papers 98-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  21. repec:att:wimass:9426 is not listed on IDEAS
  22. Bhaskar Dutta & Suresh Mutuswami, 1997. "Stable Networks," Tinbergen Institute Discussion Papers 97-039/1, Tinbergen Institute.
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  25. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
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Citations

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Cited by:
  1. Dunia López-Pintado & Fernando Vega Redondo & Sanjeev Goyal & Yann Bramoulle, 2002. "Network Formation And Anti-Coordination Games," Working Papers. Serie AD 2002-25, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Arenas, Alex & Diaz-Guilera, Albert & Perez, Conrad J. & Vega-Redondo, Fernando, 2002. "Self-organized criticality in evolutionary systems with local interaction," Journal of Economic Dynamics and Control, Elsevier, vol. 26(12), pages 2115-2142, October.
  3. Francesco Feri, 2005. "Stochastic Stability in Network with Decay," Working Papers 2005.40, Fondazione Eni Enrico Mattei.
  4. Francesco Feri, 2005. "Network Formation with Endogenous Decay," Working Papers 2005.35, Fondazione Eni Enrico Mattei.
  5. Boris Salazar & María del Pilar Castillo, 2003. "Rationality, preferences and irregular war," COLOMBIAN ECONOMIC JOURNAL, COLOMBIAN ECONOMIC JOURNAL.
  6. Michael Kosfeld, . "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.

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