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Endogenous Network Formation in the Laboratory

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Author Info
Bogachan Celen (Columbia GSB)
Kyle Hyndman () (SMU)

Additional information is available for the following registered author(s):

Abstract

This paper provides an experimental test of a theory of endogenous network forma- tion. A group of subjects face a decision problem under uncertainty. The subjects are endowed with a private information about the fundamentals of the problem, and they are supposed to make a decision one after the other. The key feature of the experiment is that a subject can observe the decisions of the preceding subjects by forming links. A link is costly, yet it enables a subject to observe previous decisions of those to whom he is linked. We show that subjects respond to changes in the information structure and the cost of link formation in the expected manner. However, we also show that behavior systematically deviates from the Bayesian benchmark as subjects form more links than theory predicts. Subjects also exhibit a tendency to conform rather than follow their own information. In order to explain this pattern, we provide an econo- metric model that posits that subjects care about their relative standing in the group. We show that the modified model provides a better fit than a standard QRE.

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Publisher Info
Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0701.

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Date of creation: Jan 2007
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Handle: RePEc:smu:ecowpa:0701

Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Phone: 214-768-2715
Fax: 214-768-1821
Web page: http://www.smu.edu/economics

For technical questions regarding this item, or to correct its listing, contact: (Kyle Hyndman).

Related research
Keywords: Social learning social interaction networks network formation.

Other versions of this item:

Find related papers by JEL classification:
A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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References listed on IDEAS
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