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Bounded Rationality and Repeated Network Formation

Author

Listed:
  • Nicolas Querou

    (Queen's University Belfast)

  • Sylvain Beal

    (CREUSET, University of Saint-Etienne)

Abstract

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.

Suggested Citation

  • Nicolas Querou & Sylvain Beal, 2006. "Bounded Rationality and Repeated Network Formation," Working Papers 2006.74, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2006.74
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    References listed on IDEAS

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    Cited by:

    1. Schuster, Stephan, 2010. "Network Formation with Adaptive Agents," MPRA Paper 27388, University Library of Munich, Germany.
    2. Schuster, Stephan, 2012. "Applications in Agent-Based Computational Economics," MPRA Paper 47201, University Library of Munich, Germany.

    More about this item

    Keywords

    Repeated Network Formation Game; Two-sided Link Formation Costs; Bounded Rationality; Automata;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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