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Learning, Network Formation And Coordination

  • Fernando Vega Redondo

    (Instituto Valenciano de Investigaciones Económicas)

  • Sanjeev Goyal

    (Queen Mary, University of London)

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://www.ivie.es/downloads/docs/wpasad/wpasad-2001-19.pdf
File Function: Fisrt version / Primera version, 2001
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2001-19.

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Length: 59 pages
Date of creation: Jun 2001
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2001-19
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  1. Galesloot, Bob M. & Goyal, Sanjeev, 1997. "Costs of flexibility and equilibrium selection," Journal of Mathematical Economics, Elsevier, vol. 28(3), pages 249-264, October.
  2. 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.
  3. Carlsson, H. & van Damme, E.E.C., 1990. "Global games and equilibrium selection," Discussion Paper 1990-52, Tilburg University, Center for Economic Research.
  4. M. Kandori & R. Rob, 2010. "Evolution of Equilibria in the Long Run: A General Theory and Applications," Levine's Working Paper Archive 502, David K. Levine.
  5. Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Matthew Haag & Roger Lagunoff, 2006. "Social Norms, Local Interaction, And Neighborhood Planning ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 265-296, 02.
  7. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  8. 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.
  9. Samuelson Larry, 1994. "Stochastic Stability in Games with Alternative Best Replies," Journal of Economic Theory, Elsevier, vol. 64(1), pages 35-65, October.
  10. G. Ellison & D. Fudenberg, 2010. "Rules of Thumb for Social Learning," Levine's Working Paper Archive 435, David K. Levine.
  11. Franklin Allen & Douglas Gale, 2000. "Financial Contagion," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 1-33, February.
  12. L. Blume, 2010. "The Statistical Mechanics of Strategic Interaction," Levine's Working Paper Archive 488, David K. Levine.
  13. Joerg Oechssler, 1994. "Decentralization and the Coordination Problem," Game Theory and Information 9403004, EconWPA.
  14. 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.
  15. D. Canning, 2010. "Average Behavior in Learning Models," Levine's Working Paper Archive 490, David K. Levine.
  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. repec:ner:tilbur:urn:nbn:nl:ui:12-154416 is not listed on IDEAS
  18. Alan Kirman, 1997. "The economy as an evolving network," Journal of Evolutionary Economics, Springer, vol. 7(4), pages 339-353.
  19. Aderlini, L. & Ianni, A., 1993. "Path Dependence and Learning from Neighbours," Papers 186, Cambridge - Risk, Information & Quantity Signals.
  20. J. Bergin & B. Lipman, 2010. "Evolution with State-Dependent Mutations," Levine's Working Paper Archive 486, David K. Levine.
  21. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  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:att:wimass:9426 is not listed on IDEAS
  24. 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.
  25. George Mailath & Larry Samuelson & Avner Shaked, 1994. "Evolution and Endogenous Interactions," Game Theory and Information 9410003, EconWPA.
  26. 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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