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Network formation with myopic and farsighted players

Author

Listed:
  • Luo, Chenghong

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Mauleon, Ana

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Vannetelbosch, Vincent

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

We adopt the notion of myopic-farsighted stable set to study the stability of networks when myopic and farsighted individuals decide with whom they want to form a link, according to some utility function that weighs the costs and benefits of each connection. A myopic-farsighted stable set is the set of networks satisfying internal and external stability with respect to the notion of myopic-farsighted improving path. We first provide conditions on the utility function that guarantee the existence of a myopic-farsighted stable set and we show that, when the population becomes mixed, the myopic-farsighted stable set refines the set of pairwise stable networks by eliminating some Pareto-dominated networks. In the end, when all players are farsighted, the myopic-farsighted stable set only consists of all strongly efficient networks. We next show that, in the case of a distance-based utility function, a tension between stability and efficiency is likely to arise when the population is homogeneous (either all myopic or all farsighted). But, once the population is mixed, the tension vanishes if there are enough farsighted individuals. In the case of a degree-based utility function, myopic and farsighted individuals may end up segregated with myopic individuals being overconnected and farsighted ones getting the socially optimal payoff.

Suggested Citation

  • Luo, Chenghong & Mauleon, Ana & Vannetelbosch, Vincent, 2020. "Network formation with myopic and farsighted players," LIDAM Reprints CORE 3132, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvrp:3132
    DOI: https://doi.org/10.1007/s00199-020-01288-8
    Note: In : Economic Theory (2020)
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    Cited by:

    1. Herings, P. Jean-Jacques & Mauleon, Ana & Vannetelbosch, Vincent, 2021. "Social Rationalizability with Mediation," LIDAM Discussion Papers CORE 2021017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Pierre de Callataÿ & Ana Mauleon & Vincent Vannetelbosch, 2023. "Myopic-farsighted absorbing networks," Theory and Decision, Springer, vol. 94(3), pages 405-422, April.
    3. Péter Bayer & Ani Guerdjikova, 2020. "Optimism leads to optimality: Ambiguity in network formation," Working Papers hal-03005107, HAL.
    4. Chenghong Luo & Ana Mauleon & Vincent Vannetelbosch, 2022. "Coalition-proof stable networks," Review of Economic Design, Springer;Society for Economic Design, vol. 26(2), pages 185-209, June.
    5. Bayer, Péter & Herings, P. Jean-Jacques & Peeters, Ronald, 2021. "Farsighted manipulation and exploitation in networks," Journal of Economic Theory, Elsevier, vol. 196(C).
    6. de Callataÿ, Pierre & Mauleon, Ana & Vannetelbosch, Vincent, 2022. "Myopic-farsighted absorbing networks," LIDAM Reprints CORE 3215, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. 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).
    8. de Callatay, Pierre & Mauleon, Ana & Vannetelbosch, Vincent, 2021. "Minimally Farsighted Unstable Networks," LIDAM Discussion Papers CORE 2021012, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    9. Pierre de Callataÿ & Ana Mauleon & Vincent Vannetelbosch, 2023. "Myopic-farsighted absorbing networks," Theory and Decision, Springer, vol. 94(3), pages 405-422, April.
    10. Luo, Chenghong & Mauleon, Ana & Vannetelbosch, Vincent, 2022. "Friendship networks with farsighted agents," LIDAM Discussion Papers CORE 2022021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    Networks ; Stable sets ; Myopic and farsighted players ; Egalitarian utility ; Positive convex externalities ; Distance-based utility ; Degree-based utility;
    All these keywords.

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General

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