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Learning, Network Formation and Coordination

  • Goyal, S.
  • Vega-Redondo, F.

In many economic and social contexts, individual players choose their partners and also decide on a mode of behavior in interactions with these partners. This paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: we suppose that a player can establish ties with other players by investing in costly pair-wise links. We show that individual efforts to balance the costs and benefits of links sharply restrict the range of stable interaction architectures; equilibrium networks are either complete or have the star architecture. Moreover, the process of network formation has powerful effects on individual behavior: if costs of forming links are low then players coordinate on the risk-dominant action, while if costs of forming links are high then they coordinate on the efficient action.

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File URL: http://repub.eur.nl/pub/6931/2000-0931.pdf
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Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 9954-/A.

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Date of creation: 10 Nov 2000
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Handle: RePEc:ems:eureir:6931
Contact details of provider: Postal: Postbus 1738, 3000 DR Rotterdam
Phone: 31 10 4081111
Web page: http://www.eur.nl/ese

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  1. L. Blume, 2010. "The Statistical Mechanics of Strategic Interaction," Levine's Working Paper Archive 488, David K. Levine.
  2. Alan Kirman, 1997. "The economy as an evolving network," Journal of Evolutionary Economics, Springer, vol. 7(4), pages 339-353.
  3. Matthew Haag & Roger Lagunoff, 2000. "social Norms, Local Interaction and Neighborhood Planning," Levine's Working Paper Archive 2049, David K. Levine.
  4. Kandori Michihiro & Rob Rafael, 1995. "Evolution of Equilibria in the Long Run: A General Theory and Applications," Journal of Economic Theory, Elsevier, vol. 65(2), pages 383-414, April.
  5. D. Canning, 2010. "Average Behavior in Learning Models," Levine's Working Paper Archive 490, David K. Levine.
  6. George Mailath & Larry Samuelson & Avner Shaked, 1994. "Evolution and Endogenous Interactions," Game Theory and Information 9410003, EconWPA.
  7. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
    • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Joerg Oechssler, 1994. "Decentralization and the Coordination Problem," Game Theory and Information 9403004, EconWPA.
  9. Carlsson, H. & Van Damme, E., 1990. "Global Games And Equilibrium Selection," Papers 9052, Tilburg - Center for Economic Research.
  10. Samuelson Larry, 1994. "Stochastic Stability in Games with Alternative Best Replies," Journal of Economic Theory, Elsevier, vol. 64(1), pages 35-65, October.
  11. G. Ellison & D. Fudenberg, 2010. "Rules of Thumb for Social Learning," Levine's Working Paper Archive 435, David K. Levine.
  12. Goyal, Sanjeev & Janssen, Maarten C. W., 1997. "Non-Exclusive Conventions and Social Coordination," Journal of Economic Theory, Elsevier, vol. 77(1), pages 34-57, November.
  13. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
  14. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  15. Franklin Allen & Douglas Gale, 1998. "Financial Contagion Journal of Political Economy," Center for Financial Institutions Working Papers 98-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
  16. Matthew O. Jackson & Alison Watts, 2000. "On the Formation of Interaction Networks in Social Coordination Games," Econometric Society World Congress 2000 Contributed Papers 0778, Econometric Society.
  17. Allen, Franklin & Gale, Douglas, 1998. "Financial Contagion," Working Papers 98-33, C.V. Starr Center for Applied Economics, New York University.
  18. Aderlini, L. & Ianni, A., 1993. "Path Dependence and Learning from Neighbours," Papers 186, Cambridge - Risk, Information & Quantity Signals.
  19. Bergin, James & Lipman, Barton L, 1996. "Evolution with State-Dependent Mutations," Econometrica, Econometric Society, vol. 64(4), pages 943-56, July.
  20. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
  21. Bala, V. & Goyal, S., 1995. "Learning from Neighbors," Econometric Institute Research Papers EI 9549-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  22. Fernando Vega Redondo & Ventakamaran Bhaskar, 1996. "Migration and the evolution of conventions," Working Papers. Serie AD 1996-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  23. repec:ner:tilbur:urn:nbn:nl:ui:12-154416 is not listed on IDEAS
  24. Arthur J Robson & Fernando Vega-Redondo, 1999. "Efficient Equilibrium Selection in Evolutionary Games with Random Matching," Levine's Working Paper Archive 2112, David K. Levine.
  25. Galesloot, Bob M. & Goyal, Sanjeev, 1997. "Costs of flexibility and equilibrium selection," Journal of Mathematical Economics, Elsevier, vol. 28(3), pages 249-264, October.
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