Network formation is frequently modeled using link-formation games and typically present a multiplicity of Nash equilibria. Cooperative refinements - such as strong or coalitional proof Nash equilibria - have been the standard tool used for equilibrium selection in these games. Non-cooperative refinements derived from the theory of global games have shown also that, for a class of payo¤ functions, multiplicity of equilibria disappears when the game is perturbed by introducing small amounts of incomplete information. We conducted a laboratory study evaluating the predictive power of each of these refinements in an illustrative link-formation game. Compared with cooperative game solutions, the global game approach did significantly better at predicting the strategies played by individuals in the experiment.
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Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number
331.
Find related papers by JEL classification: C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior D20 - Microeconomics - - Production and Organizations - - - General D44 - Microeconomics - - Market Structure and Pricing - - - Auctions D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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[Downloadable!]