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Learning, Network Formation and Coordination

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  • 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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Bibliographic Info

Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 9954-/A.

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Date of creation: 10 Nov 2000
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Handle: RePEc:ems:eureir:6931

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Related research

Keywords: coordination; learning; network formation;

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References

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  1. Galesloot, Bob M. & Goyal, Sanjeev, 1997. "Costs of flexibility and equilibrium selection," Journal of Mathematical Economics, Elsevier, vol. 28(3), pages 249-264, October.
  2. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 612-43, August.
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Citations

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Cited by:
  1. Francesco Feri, 2005. "Stochastic Stability in Network with Decay," Working Papers 2005.40, Fondazione Eni Enrico Mattei.
  2. Miguel A. Meléndez-Jiménez, 2002. "Network Formation And Coordination: Bargaining The Division Of Link Costs," Working Papers. Serie AD 2002-27, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  3. Hans Haller & Sudipta Sarangi, 2003. "Nash Networks with Heterogeneous Agents," Discussion Papers of DIW Berlin 337, DIW Berlin, German Institute for Economic Research.
  4. Yannis M. Ioannides, 2005. "Random Graphs and Social Networks: An Economics Perspective," Discussion Papers Series, Department of Economics, Tufts University 0518, Department of Economics, Tufts University.
  5. Felipe Balmaceda, 2004. "Network Formation and Cooperation," Econometric Society 2004 Latin American Meetings 208, Econometric Society.
  6. Giorgio Fagiolo & Luigi Marengo & Marco Valente, 2004. "Endogenous Networks In Random Population Games," Mathematical Population Studies, Taylor & Francis Journals, vol. 11(2), pages 121-147.
  7. Giorgio Fagiolo & Luigi Marengo & Marco Valente, 2005. "Population Learning in a Model with Random Payoff Landscapes and Endogenous Networks," Computational Economics, Society for Computational Economics, vol. 24(4), pages 383-408, June.
  8. 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.
  9. Boris Salazar & María del Pilar Castillo, 2003. "Rationality, preferences and irregular war," COLOMBIAN ECONOMIC JOURNAL, UN - RCE - CID.
    • Boris Salazar & Maria del Pilar Castillo, 2003. "Rationality, preferences and irregular war," Colombian Economic Journal, Academia Colombiana de Ciencias Economicas, Colegio Mayor de Nuestra Senora del Rosario, Pontificia Universidad Javeriana, Universidad de Antioquia, Universidad de los Andes, Universidad del Valle, Un, vol. 1(1), pages 15-33, December.
  10. Francesco Feri, 2005. "Network Formation with Endogenous Decay," Working Papers 2005.35, Fondazione Eni Enrico Mattei.
  11. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.
  12. Giorgio Fagiolo, 2001. "Coordination, Local Interactions and Endogenous Neighborhood Formation," LEM Papers Series 2001/15, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  13. Michael Kosfeld, . "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.
  14. Yann Bramoullé & Dunia López-Pintado & Sanjeev Goyal & Fernando Vega-Redondo, 2004. "Network formation and anti-coordination games," International Journal of Game Theory, Springer, vol. 33(1), pages 1-19, January.

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