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Learning, Network Formation And Coordination

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Author Info

  • Fernando Vega Redondo

    (Instituto Valenciano de Investigaciones Económicas)

  • Sanjeev Goyal

    (Queen Mary, University of London)

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://www.ivie.es/downloads/docs/wpasad/wpasad-2001-19.pdf
File Function: Fisrt version / Primera version, 2001
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2001-19.

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Length: 59 pages
Date of creation: Jun 2001
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2001-19

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Related research

Keywords: Networks; social learning; equilibrium selection;

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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. Goyal, Sanjeev & Janssen, Maarten C. W., 1997. "Non-Exclusive Conventions and Social Coordination," Journal of Economic Theory, Elsevier, vol. 77(1), pages 34-57, November.
  3. BERGIN, James & LIPMAN, Bart, 1994. "Evolution with State-Dependent Mutations," CORE Discussion Papers 1994055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. George Mailath & Larry Samuelson & Avner Shaked, 1994. "Evolution and Endogenous Interactions," Game Theory and Information 9410003, EconWPA.
  5. Hans Carlsson & Eric van Damme, 1993. "Global Games and Equilibrium Selection," Levine's Working Paper Archive 122247000000001088, David K. Levine.
  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. Canning, D., 1990. "Average Behaviour In Learning Models," Papers 156, Cambridge - Risk, Information & Quantity Signals.
  8. Matthew O. Jackson & Alison Watts, 2000. "On the Formation of Interaction Networks in Social Coordination Games," Econometric Society World Congress 2000 Contributed Papers 0778, Econometric Society.
  9. Matthew Haag & Roger Lagunoff, 2000. "social Norms, Local Interaction and Neighborhood Planning," Levine's Working Paper Archive 2049, David K. Levine.
  10. 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.
  11. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
  12. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  13. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July.
  14. M. Kandori & R. Rob, 2010. "Evolution of Equilibria in the Long Run: A General Theory and Applications," Levine's Working Paper Archive 502, David K. Levine.
  15. Bala, Venkatesh & Goyal, Sanjeev, 1998. "Learning from Neighbours," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 595-621, July.
  16. Ellison, Glenn & Fudenberg, Drew, 1992. "Rules of Thumb for Social Learning," IDEI Working Papers 17, Institut d'Économie Industrielle (IDEI), Toulouse.
  17. 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.
  18. Fernando Vega Redondo & Ventakamaran Bhaskar, 1996. "Migration and the evolution of conventions," Working Papers. Serie AD 1996-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  19. Aderlini, L. & Ianni, A., 1993. "Path Dependence and Learning from Neighbours," Papers 186, Cambridge - Risk, Information & Quantity Signals.
  20. Samuelson Larry, 1994. "Stochastic Stability in Games with Alternative Best Replies," Journal of Economic Theory, Elsevier, vol. 64(1), pages 35-65, October.
  21. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  22. Alan Kirman, 1997. "The economy as an evolving network," Journal of Evolutionary Economics, Springer, vol. 7(4), pages 339-353.
  23. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
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Citations

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Cited by:
  1. Giorgio Fagiolo & Luigi Marengo & Marco Valente, 2003. "Endogenous Networks in Random Population Games," LEM Papers Series 2003/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  2. 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).
  3. Sudipta Sarangi & H. Haller, . "Nash Networks with Heterogeneous Agents," Departmental Working Papers 2003-06, Department of Economics, Louisiana State University.
  4. Giorgio Fagiolo, 2002. "Coordination, Local Interactions, and Endogenous Neighborhood Formation," Computing in Economics and Finance 2002 98, Society for Computational Economics.
  5. 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.
  6. 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).
  7. Albert Díaz-Guilera & Alex Arenas Moreno & Conrad J. Pérez Vicente & Fernando Vega Redondo, 2000. "Self-Organized Criticality In Evolutionary Systems With Local Interaction," Working Papers. Serie AD 2000-30, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. 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.
  9. Francesco Feri, 2005. "Stochastic Stability in Network with Decay," Working Papers 2005.40, Fondazione Eni Enrico Mattei.
  10. Francesco Feri, 2005. "Network Formation with Endogenous Decay," Working Papers 2005.35, Fondazione Eni Enrico Mattei.
  11. 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.
  12. Michael Kosfeld, . "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.
  13. Felipe Balmaceda, 2004. "Network Formation and Cooperation," Econometric Society 2004 Latin American Meetings 208, Econometric Society.
  14. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.

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