Bounded Rationality and Repeated Network Formation
AbstractWe define a finite-horizon repeated network formation game with consent, and study the differences induced by different levels of individual rationality. We prove that perfectly rational players will remain unconnected at the equilibrium, while nonempty equilibrium networks may form when, following Neyman (1985), players are assumed to behave as finite automata. We define two types of equilibria, namely the Repeated Nash Network (RNN), in which the same network forms at each period, and the Repeated Nash Equilibrium (RNE), in which different networks may form. We state a sufficient condition under which a given network may be implemented as a RNN. Then, we provide structural properties of RNE. For instance, players may form totally different networks at each period, or the networks within a given RNE may exhibit a total order relationship. Finally we investigate the question of efficiency for both Bentham and Pareto criteria.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.74.
Date of creation: May 2006
Date of revision:
Repeated Network Formation Game; Two-sided Link Formation Costs; Bounded Rationality; Automata;
Other versions of this item:
- Beal, Sylvain & Querou, Nicolas, 2007. "Bounded rationality and repeated network formation," Mathematical Social Sciences, Elsevier, vol. 54(1), pages 71-89, July.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-21 (All new papers)
- NEP-CBE-2006-07-21 (Cognitive & Behavioural Economics)
- NEP-GTH-2006-07-21 (Game Theory)
- NEP-MIC-2006-07-21 (Microeconomics)
- NEP-NET-2006-07-21 (Network Economics)
- NEP-SOC-2006-07-21 (Social Norms & Social Capital)
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