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Bounded Rationality and Repeated Network Formation

  • Nicolas Querou

    (Queen's University Belfast)

  • Sylvain Beal

    (CREUSET, University of Saint-Etienne)

We define a finite-horizon repeated network formation game with consent, and study the differences induced by different levels of individual rationality. We prove that perfectly rational players will remain unconnected at the equilibrium, while nonempty equilibrium networks may form when, following Neyman (1985), players are assumed to behave as finite automata. We define two types of equilibria, namely the Repeated Nash Network (RNN), in which the same network forms at each period, and the Repeated Nash Equilibrium (RNE), in which different networks may form. We state a sufficient condition under which a given network may be implemented as a RNN. Then, we provide structural properties of RNE. For instance, players may form totally different networks at each period, or the networks within a given RNE may exhibit a total order relationship. Finally we investigate the question of efficiency for both Bentham and Pareto criteria.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.74.

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Date of creation: May 2006
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Handle: RePEc:fem:femwpa:2006.74
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  8. Matt Jackson, 2003. "The Effects of Social Networks on Employment and Inequality," Theory workshop papers 658612000000000032, UCLA Department of Economics.
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  10. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
  11. Ehud Kalai & William Stanford, 1986. "Finite Rationality and Interpersonal Complexity in Repeated Games," Discussion Papers 679, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Watts, Alison, 2002. "Non-myopic formation of circle networks," Economics Letters, Elsevier, vol. 74(2), pages 277-282, January.
  13. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
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  15. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November.
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