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Network Structure and Strategic Investments: An Experimental Analysis

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Author Info
Stephanie Rosenkranz ()
Utz Weitzel ()

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Abstract

This paper analyzes the effects of network positions and individual risk attitudes on individuals' strategic decisions in an experiment where actions are strategic substitutes. The game theoretic basis for our experiment is the model of Bramoulle and Kranton (2007). In particular, we are interested in disentangling the influence of global, local and individual factors. We study subjects' strategic investment decisions in four basic network structures. As predicted, we find that global factors, such as the regularity of the network structure, influence behavior. However, we also find evidence that individual play in networks is to some extent boundedly rational, in the sense that coordination is influenced by local and individual factors, such as the number of (direct) neighbors, local clustering and individuals' risk attitudes.

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Paper provided by Utrecht School of Economics in its series Working Papers with number 08-24.

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Length: 37 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:use:tkiwps:0824

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Related research
Keywords: networks; experiment; coordination; strategic substitutes; risk aversion;

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D00 - Microeconomics - - General - - - General
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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  1. Kene BOUN MY & Marc WILLINGER & Anthony ZIEGELMEYER, 1999. "Global versus local interaction in coordination games: an experimental investigation," Working Papers of BETA 9923, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  2. Daniel Houser & Robert Kurzban, 2002. "Revisiting Kindness and Confusion in Public Goods Experiments," American Economic Review, American Economic Association, vol. 92(4), pages 1062-1069, September. [Downloadable!]
  3. Stephen Morris & Hyun S Shin, 2001. "Global Games: Theory and Applications," Levine's Working Paper Archive 122247000000001080, David K. Levine. [Downloadable!]
    Other versions:
  4. Stahl Dale O. & Wilson Paul W., 1995. "On Players' Models of Other Players: Theory and Experimental Evidence," Games and Economic Behavior, Elsevier, vol. 10(1), pages 218-254, July. [Downloadable!] (restricted)
  5. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July. [Downloadable!] (restricted)
  6. Costa-Gomes, Miguel & Crawford, Vincent P & Broseta, Bruno, 2001. "Cognition and Behavior in Normal-Form Games: An Experimental Study," Econometrica, Econometric Society, vol. 69(5), pages 1193-1235, September.
    Other versions:
  7. Michael Kosfeld, 2004. "Economic Networks in the Laboratory: A Survey," Review of Network Economics, Concept Economics, vol. 3(1), pages 19-41, March. [Downloadable!]
  8. Rodrigo Harrison, . "Global Games with Strategic Substitutes," Working Papers gueconwpa~03-03-06, Georgetown University, Department of Economics. [Downloadable!]
    Other versions:
  9. Foster, Andrew D & Rosenzweig, Mark R, 1995. "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1176-1209, December. [Downloadable!] (restricted)
    Other versions:
  10. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "Measuring Strategic Uncertainty in Coordination Games," Discussion Papers 6, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  11. Keser, Claudia & Ehrhart, Karl-Martin & Berninghaus, Siegfried K., 1998. "Coordination and local interaction: experimental evidence," Economics Letters, Elsevier, vol. 58(3), pages 269-275, March. [Downloadable!] (restricted)
  12. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  13. Michael Kosfeld, . "Network Experiments," IEW - Working Papers iewwp152, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  14. Eshel, Ilan & Samuelson, Larry & Shaked, Avner, 1998. "Altruists, Egoists, and Hooligans in a Local Interaction Model," American Economic Review, American Economic Association, vol. 88(1), pages 157-79, March. [Downloadable!] (restricted)
  15. Kirchkamp, Oliver & Nagel, Rosemarie, 2007. "Naive learning and cooperation in network experiments," Games and Economic Behavior, Elsevier, vol. 58(2), pages 269-292, February. [Downloadable!] (restricted)
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