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Network Structure in a Link-formation Game: An Experimental Study

  • Alexander Elbittar
  • Rodrigo Harrison

    ()

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

  • Roberto Muñoz

Network formation is frequently modeled using link-formation games and typically present a multiplicity of Nash equilibria. Cooperative refinements - such as strong or coalitional proof Nash equilibria - have been the standard tool used for equilibrium selection in these games. Non-cooperative refinements derived from the theory of global games have shown also that, for a class of payoff functions, multiplicity of equilibria disappears when the game is perturbed by introducing small amounts of incomplete information. We conducted a laboratory study evaluating the predictive power of each of these refinements in an illustrative link-formation game. Compared with cooperative game solutions, the global game approach did significantly better at predicting the strategies played by individuals in the experiment.

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Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 331.

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Date of creation: 2008
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Handle: RePEc:ioe:doctra:331
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  1. Venkatesh Bala & Sanjeev Goyal, 2000. "A Noncooperative Model of Network Formation," Econometrica, Econometric Society, vol. 68(5), pages 1181-1230, September.
  2. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
  3. Jackson, Matthew O. & van den Nouweland, Anne, 2002. "Strongly Stable Networks," Working Papers 1147, California Institute of Technology, Division of the Humanities and Social Sciences.
  4. Falk Armin & Kosfeld Michael, 2012. "It's all about Connections: Evidence on Network Formation," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-36, September.
  5. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Dutta, B. & van den Nouweland, C.G.A.M. & Tijs, S.H., 1995. "Link formation in cooperative situations," Discussion Paper 1995-35, Tilburg University, Center for Economic Research.
  7. Matthew O. Jackson, 2003. "A Survey of Models of Network Formation: Stability and Efficiency," Game Theory and Information 0303011, EconWPA.
  8. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica, Econometric Society, vol. 72(5), pages 1583-1599, 09.
  9. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium selection in global games with strategic complementarities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 1-44, January.
  10. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
  11. Antonio Cabrales & Rosemarie Nagel & Roc Armenter, 2007. "Equilibrium selection through incomplete information in coordination games: an experimental study," Experimental Economics, Springer, vol. 10(3), pages 221-234, September.
  12. Rodrigo Harrison & Roberto Muñoz, 2008. "Stability and equilibrium selection in a link formation game," Economic Theory, Springer, vol. 37(2), pages 335-345, November.
  13. (*), Anne van den Nouweland & Marco Slikker, 2000. "original papers : Network formation models with costs for establishing links," Review of Economic Design, Springer, vol. 5(3), pages 333-362.
  14. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.
  15. repec:ner:tilbur:urn:nbn:nl:ui:12-77112 is not listed on IDEAS
  16. Cary Deck & Cathleen Johnson, 2004. "Link bidding in laboratory networks," Review of Economic Design, Springer, vol. 8(4), pages 359-372, 04.
  17. Callander, Steven & Plott, Charles R., 2005. "Principles of network development and evolution: an experimental study," Journal of Public Economics, Elsevier, vol. 89(8), pages 1469-1495, August.
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