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Behavorial Effects in Individual Decisions of Network Formation

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Author Info
Harmsen-van Hout, Marjolein J.W.
Dellaert, Benedict G.C.
Herings, P. Jean-Jacques (METEOR)

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Abstract

Network formation constitutes an important part of many social and economic processes, but relatively little is known about how individuals make their linking decisions. This article provides an experimental investigation of behavioral effects in individual decisions of network formation. Our findings demonstrate that individuals systematically simplify more complex components of network payoff in their linking decisions. Specifically, they focus on only part of the normative payoff, namely on their own direct payoff and tend to ignore indirect payoff and payoff for others in the network. Additionally, individuals use descriptive behavioral traits of link choice alternatives to guide their choices. They are sensitive to whether an alternative involves link deletion or creation and whether it concerns an isolated or a central node. Furthermore, we find that complexity of one type can moderate individuals’ dealing with a complex feature of another type. These behavioral effects have important implications for researchers and managers working in areas that involve network formation.

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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 019.

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Date of creation: 2008
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Handle: RePEc:dgr:umamet:2008019

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Keywords: Economics (Jel: A);

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  7. Swait, Joffre & Adamowicz, Wiktor, 2001. " The Influence of Task Complexity on Consumer Choice: A Latent Class Model of Decision Strategy Switching," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 28(1), pages 135-48, June.
  8. Esther Hauk & Rosemarie Nagel, 2000. "Choice of Partners in Multiple Two-person Prisoner's Dilemma Games: An Experimental Study," Economics Working Papers 487, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  9. John Duffy & Dean Corbae, 2006. "Experiments with Network Formation," Working Papers 292, University of Pittsburgh, Department of Economics, revised Aug 2007. [Downloadable!]
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  10. Daniel McFadden, 2001. "Economic Choices," American Economic Review, American Economic Association, vol. 91(3), pages 351-378, June. [Downloadable!] (restricted)
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  11. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October. [Downloadable!] (restricted)
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