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Limited Farsightedness in Network Formation

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  • KIRCHSTEIGER, Georg
  • MANTOVANI, Marco
  • MAULEON, Ana
  • VANNETELBOSCH, Vincent

Abstract

Pairwise stability Jackson and Wolinsky [1996] is the standard stability concept in network formation. It assumes myopic behavior of the agents in the sense that they do not forecast how others might react to their actions. Assuming that agents are perfectly farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these extreme theories, but find evidence against both of them: the subjects are consistent with an intermediate rule of behavior, which we interpret as a form of limited farsightedness. On aggregate, the selection among multiple pairwise stable networks (and the performance of farsighted stability) crucially depends on the level of farsightedness needed to sustain them, and not on efficiency or cooperative considerations. Individual behavior analysis corroborates this interpretation, and suggests, in general, a low level of farsightedness (around two steps) on the part of the agents.
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Suggested Citation

  • KIRCHSTEIGER, Georg & MANTOVANI, Marco & MAULEON, Ana & VANNETELBOSCH, Vincent, 2016. "Limited Farsightedness in Network Formation," LIDAM Reprints CORE 2741, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:2741
    Note: In : Journal of Economic Behavior & Organization, 128, 2016, p. 97-120
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    Cited by:

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    3. Pietro Battiston, 2016. "Constrained Network Formation," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 2(3), pages 347-362, November.
    4. Kenan Huremovic, 2015. "A Noncooperative Model of Contest Network Formation," AMSE Working Papers 1521, Aix-Marseille School of Economics, France, revised Feb 2015.
    5. P. Jean-Jacques Herings & Ana Mauleon & Vincent Vannetelbosch, 2019. "Stability of networks under horizon-K farsightedness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 177-201, July.
    6. Kimya, Mert, 0. "Equilibrium coalitional behavior," Theoretical Economics, Econometric Society.
    7. Comola, Margherita & Fafchamps, Marcel, 2018. "An experimental study on decentralized networked markets," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 567-591.
    8. Carrillo, Juan D. & Gaduh, Arya, 2021. "Dynamics and stability of social and economic networks: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 1144-1176.
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    11. Mauleon, Ana & Sempere-Monerris, Jose J. & Vannetelbosch, Vincent, 2021. "Limited Farsightedness in R&D Network Formation," LIDAM Discussion Papers CORE 2021006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Kimya, Mert, 2021. "Coalition Formation Under Dominance Invariance," Working Papers 202106, University of Sydney, School of Economics.
    13. Boris van Leeuwen & Theo Offerman & Arthur Schram, 2020. "Competition for Status Creates Superstars: an Experiment on Public Good Provision and Network Formation," Journal of the European Economic Association, European Economic Association, vol. 18(2), pages 666-707.
    14. Michael Caldara & Michael McBride, 2014. "An Experimental Study of Network Formation with Limited Observation," Working Papers 141501, University of California-Irvine, Department of Economics.
    15. Casella, Alessandra & Palfrey, Thomas R., 2021. "Trading votes for votes: A laboratory study," Games and Economic Behavior, Elsevier, vol. 125(C), pages 1-26.
    16. Mariya Teteryatnikova & James Tremewan, 2015. "Stability in Network Formation Games with Streams of Payoffs: An Experimental Study," Vienna Economics Papers 1508, University of Vienna, Department of Economics.
    17. Margherita Comola & Marcel Fafchamps, 2015. "An Experimental Study of Decentralized Link Formation with Competition," NBER Working Papers 21758, National Bureau of Economic Research, Inc.
    18. Herings, P.J.J. & Mauleon, A. & Vannetelbosch, V., 2014. "Stability of networks under level-k farsightedness," Research Memorandum 030, Maastricht University, Graduate School of Business and Economics (GSBE).
    19. de Callatay, Pierre & Mauleon, Ana & Vannetelbosch, Vincent, 2021. "Myopic-Farsighted Absorbing Networks," LIDAM Discussion Papers CORE 2021003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    20. Djawadi, Behnud Mir & Endres, Angelika & Hoyer, Britta & Recker, Sonja, 2019. "Network formation and disruption - An experiment are equilibrium networks too complex?," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 708-734.
    21. Britta Hoyer & Stephanie Rosenkranz, 2018. "Determinants of Equilibrium Selection in Network Formation: An Experiment," Games, MDPI, Open Access Journal, vol. 9(4), pages 1-25, November.
    22. Haller, Hans & Hoyer, Britta, 2019. "The common enemy effect under strategic network formation and disruption," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 146-163.
    23. Mariya Teteryatnikova & James Tremewan, 2020. "Myopic and farsighted stability in network formation games: an experimental study," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(4), pages 987-1021, June.

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    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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