IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Network structure and strategic investments: An experimental analysis

  • Rosenkranz, Stephanie
  • Weitzel, Utz

This paper experimentally analyzes the effect of network structures on individualsʼ decisions in a game of strategic substitutes. The theoretical basis for our experiment is the model of Bramoullé and Kranton (2007). As predicted, we find that individuals are able to coordinate on equilibria, but that coordination strongly depends on the network structure. Despite frequent coordination failures, in graphs of size N=4 equilibrium play seems easier on network architectures with high (low) density and low (high) centrality. If play converges, it almost exclusively does so towards the predicted equilibria. Theoretical results with respect to welfare are also confirmed. Next to global graph structural properties we also explore the effects of local and individual factors. We find that behavior on networks is affected by the number of (direct) neighbors, but not by individualsʼ risk attitudes. Apparently, the global and the local structure of a network does not leave much explanatory room for individual effects that pertain to risk taking.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0899825612000231
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 75 (2012)
Issue (Month): 2 ()
Pages: 898-920

as
in new window

Handle: RePEc:eee:gamebe:v:75:y:2012:i:2:p:898-920
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Heinemann, Frank & Nagel, Rosemarie & Ockenfels, Peter, 2004. "Measuring Strategic Uncertainty in Coordination Games," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 6, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Goeree,Jacob K. & Riedl,Arno & Ule,Aljaz, 2005. "In Search of Stars: Network Formation among Heterogeneous Agents," Research Memorandum 032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Berninghaus, Siegfried K. & Ehrhart, Karl-Martin & Keser, Claudia, 2002. "Conventions and Local Interaction Structures: Experimental Evidence," Games and Economic Behavior, Elsevier, vol. 39(2), pages 177-205, May.
  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.
  5. 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.
  6. Christian Hellwig, 2002. "Imperfect Common Knowledge of Preferences in Global Coordination Games (October 2002)," UCLA Economics Online Papers 211, UCLA Department of Economics.
  7. Bramoulle, Yann & Kranton, Rachel, 2007. "Public goods in networks," Journal of Economic Theory, Elsevier, vol. 135(1), pages 478-494, July.
  8. Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2008. "Network Games," Economics Working Papers ECO2008/07, European University Institute.
    • Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2010. "Network Games," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 218-244.
  9. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
  10. Harrison, James D. & Young, Jane M. & Butow, Phyllis & Salkeld, Glenn & Solomon, Michael J., 2005. "Is it worth the risk? A systematic review of instruments that measure risk propensity for use in the health setting," Social Science & Medicine, Elsevier, vol. 60(6), pages 1385-1396, March.
  11. Michael Kosfeld, 2002. "Stochastic strategy adjustment in coordination games," Economic Theory, Springer, vol. 20(2), pages 321-339.
  12. Rodrigo Harrison & Roberto Munoz, 2003. "Global Games with Strategic Substitutes," Working Papers gueconwpa~03-03-07, Georgetown University, Department of Economics.
  13. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  14. 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.
  15. Kosfeld Michael, 2004. "Economic Networks in the Laboratory: A Survey," Review of Network Economics, De Gruyter, vol. 3(1), pages 1-23, March.
  16. Costa-Gomes, Miguel & Crawford, Vincent P. & Broseta, Bruno, 1998. "Cognition and Behavior in Normal-Form Games: An Experimental Study," University of California at San Diego, Economics Working Paper Series qt1vn4h7x5, Department of Economics, UC San Diego.
  17. repec:att:wimass:9612 is not listed on IDEAS
  18. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275, Cowles Foundation for Research in Economics, Yale University.
  19. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  20. Callander, Steven & Plott, Charles R., 2005. "Principles of network development and evolution: an experimental study," Journal of Public Economics, Elsevier, vol. 89(8), pages 1469-1495, August.
  21. Cassar, Alessandra, 2007. "Coordination and cooperation in local, random and small world networks: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 58(2), pages 209-230, February.
  22. repec:rne:rneart:v:3:y:2004:i:1:p:19-41 is not listed on IDEAS
  23. Turocy, Theodore L., 2005. "A dynamic homotopy interpretation of the logistic quantal response equilibrium correspondence," Games and Economic Behavior, Elsevier, vol. 51(2), pages 243-263, May.
  24. Kirchkamp, Oliver & Nagel, Rosemarie, 2005. "Learning and cooperation in network experiments," Sonderforschungsbereich 504 Publications 05-27, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  25. Jacob Goeree & Charles Holt & Thomas Palfrey, 2005. "Regular Quantal Response Equilibrium," Experimental Economics, Springer, vol. 8(4), pages 347-367, December.
  26. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  27. Jaromir Kovarik & Friederike Mengel & José Gabriel Romero, 2010. "(Anti-) Coordination in Networks," Working Papers 2010.49, Fondazione Eni Enrico Mattei.
  28. 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.
  29. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  30. 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.
  31. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 2001. "Minimum-Effort Coordination Games: Stochastic Potential and Logit Equilibrium," Games and Economic Behavior, Elsevier, vol. 34(2), pages 177-199, February.
  32. Kirchkamp, Oliver & Nagel, Rosemarie, 2007. "Naive learning and cooperation in network experiments," Games and Economic Behavior, Elsevier, vol. 58(2), pages 269-292, February.
  33. L. Blume, 2010. "The Statistical Mechanics of Strategic Interaction," Levine's Working Paper Archive 488, David K. Levine.
  34. Eshel, I. & Samuelson, L. & Shaked, A., 1996. "Altruists, Egoists and Hooligans in a Local Interaction Model," Working papers 9612r, Wisconsin Madison - Social Systems.
  35. Michael Kosfeld, . "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.
  36. 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, UDS, Strasbourg.
  37. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica, Econometric Society, vol. 72(5), pages 1583-1599, 09.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:75:y:2012:i:2:p:898-920. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.