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Social Networks: Equilibrium Selection and Friendliness

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Abstract

Given their importance in determining the outcome of many economic interactions, different models have been proposed to determine how social networks form and which structures are stable. In Bala and Goyal (2000), the one-sided link formation model has been considered, which is based on a noncooperative game of network formation. They found out that the empty networks, the wheel in the one-way flow of benefits case and the center sponsored star in the two-way flow case play a fundamental role, since they are strict Nash equilibria of the corresponding games for certain classes of payoff functions. In this paper, firstly we prove that all these network structures are in weakly dominated strategies whenever there are no strict Nash equilibria. Then, we exhibit a more accurate selection device between these network architectures by considering ‘altruistic behavior’ refinements. Such refinements, that we investigate here in the framework of finite strategy sets games, have been introduced by the authors in previous papers.

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  • Giuseppe De Marco & Jacqueline Morgan, 2007. "Social Networks: Equilibrium Selection and Friendliness," CSEF Working Papers 198, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:198
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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. Giuseppe De Marco & Jacqueline Morgan, 2008. "Friendliness And Reciprocity In Equilibrium Selection," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 53-72.
    3. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
      • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Giuseppe De Marco & Jacqueline Morgan, 2007. "Slightly Altruistic Equilibria in Normal Form Games," CSEF Working Papers 185, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
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