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The Role of Beliefs and Confidence in Building Social Networks

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Sudipta Sarangi ()
Robert P. Gilles ()

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Abstract

We examine the process of building social relationships in a non-cooperative game where such link formation is costly and requires mutual consent. We provide a noncooperative foundation for several link-based network stability concepts that have been studied in the literature on network formation. In our model players form myopic beliefs about the feasibility of building direct relationships with their acquaintances. These beliefs represent how each neighbor of a player is expected to respond to the initiation of a link by that player. We introduce a stability concept called “monadic stability” where agents play a best response to their formed myopic beliefs such that these beliefs are self-confirming. The resulting equilibrium networks form a class of networks that are shown to have some very appealing properties.

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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2005-15.

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Handle: RePEc:lsu:lsuwpp:2005-15

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  1. Paul Belleflamme & Francis Bloch, 2004. "Market sharing agreements and collusive networks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 387-411, 05. [Downloadable!] (restricted)
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  2. Bloch, Francis & Jackson, Matthew, 2004. "The Formation of Networks with Transfers among Players," Working Papers 1194, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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  3. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  4. Jackson, Matthew O. & Watts, Alison, 2002. "The Evolution of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 106(2), pages 265-295, October. [Downloadable!] (restricted)
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  5. Slikker, M. & Nouweland, A. van den, 1999. "Network formation models with costs for establishing links," Research Memorandum 771, Tilburg University, Faculty of Economics and Business Administration. [Downloadable!]
  6. Gilles, R.P. & Sarangi, S., 2004. "Social network formation with consent," Discussion Paper 70, Tilburg University, Center for Economic Research. [Downloadable!]
  7. Rod Garratt & Cheng-Zhong Qin, 2003. "On cooperation structures resulting from simultaneous proposals," Economics Bulletin, Economics Bulletin, vol. 3(5), pages 1-9. [Downloadable!]
  8. Gilles, Robert P. & Sarangi, Sudipta, 2005. "Stable networks and convex payoffs," Discussion Paper 84, Tilburg University, Center for Economic Research. [Downloadable!]
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  9. Stef Tijs & Anne van den Nouweland & Bhaskar Dutta, 1998. "Link formation in cooperative situations," International Journal of Game Theory, Springer, vol. 27(2), pages 245-256. [Downloadable!] (restricted)
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  10. 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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  11. Fudenberg, D. & Levine, D.K., 1991. "Self-Confirming Equilibrium ," Working papers 581, Massachusetts Institute of Technology (MIT), Department of Economics.
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  12. Page, Frank Jr. & Wooders, Myrna H. & Kamat, Samir, 2005. "Networks and farsighted stability," Journal of Economic Theory, Elsevier, vol. 120(2), pages 257-269, February. [Downloadable!] (restricted)
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