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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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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
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  1. 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.
  2. 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.
  3. Canning, D., 1990. "Average Behaviour In Learning Models," Papers 156, Cambridge - Risk, Information & Quantity Signals.
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  8. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Scholarly Articles 3196332, Harvard University Department of Economics.
  9. 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.
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  13. Mailath, G.J. & Samuelson, L. & Shaked, A., 1994. "Evolution and Endogenous Interations," Working papers 9426, Wisconsin Madison - Social Systems.
  14. 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, March.
  15. J. Bergin & B. Lipman, 2010. "Evolution with State-Dependent Mutations," Levine's Working Paper Archive 486, David K. Levine.
  16. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  17. Robson, Arthur J. & Vega-Redondo, Fernando, 1996. "Efficient Equilibrium Selection in Evolutionary Games with Random Matching," Journal of Economic Theory, Elsevier, vol. 70(1), pages 65-92, July.
  18. Aderlini, L. & Ianni, A., 1993. "Path Dependence and Learning from Neighbours," Papers 186, Cambridge - Risk, Information & Quantity Signals.
  19. Joerg Oechssler, 1994. "Decentralization and the Coordination Problem," Game Theory and Information 9403004, EconWPA.
  20. Venkatesh Bala & Sanjeev Goyal, 1998. "Learning from Neighbours," Review of Economic Studies, Oxford University Press, vol. 65(3), pages 595-621.
  21. Bhaskar, V & Vega-Redondo, F, 1996. "Migration and the Evolution of Conventions," UFAE and IAE Working Papers 354.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  22. Alan Kirman, 1997. "The economy as an evolving network," Journal of Evolutionary Economics, Springer, vol. 7(4), pages 339-353.
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  24. 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.
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