Endogenous Network Formation in the Laboratory
This paper provides an experimental test of a theory of endogenous network forma- tion. A group of subjects face a decision problem under uncertainty. The subjects are endowed with a private information about the fundamentals of the problem, and they are supposed to make a decision one after the other. The key feature of the experiment is that a subject can observe the decisions of the preceding subjects by forming links. A link is costly, yet it enables a subject to observe previous decisions of those to whom he is linked. We show that subjects respond to changes in the information structure and the cost of link formation in the expected manner. However, we also show that behavior systematically deviates from the Bayesian benchmark as subjects form more links than theory predicts. Subjects also exhibit a tendency to conform rather than follow their own information. In order to explain this pattern, we provide an econo- metric model that posits that subjects care about their relative standing in the group. We show that the modified model provides a better fit than a standard QRE.
|Date of creation:||Jan 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.smu.edu/economics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dorothea K¸bler & Georg Weizs”cker, 2004. "Limited Depth of Reasoning and Failure of Cascade Formation in the Laboratory," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 425-441, 04.
- Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
- Vives, X., 1990.
"How Fast Do Rational Agents Learn?,"
UFAE and IAE Working Papers
135-90, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Jacob K. Goeree & Thomas R. Palfrey & Brian W. Rogers & Richard D. McKelvey, 2006.
"Self-Correcting Information Cascades,"
321307000000000211, UCLA Department of Economics.
- Goeree, Jacob & Palfrey, Thomas & Rogers, Brian & McKelvey, Richard, 2004. "Self-correcting Information Cascades," Working Papers 1197, California Institute of Technology, Division of the Humanities and Social Sciences.
- Jacob Goeree & Thomas Palfrey & Brian Rogers, 2004. "Self-Correcting Information Cascades," Levine's Bibliography 122247000000000153, UCLA Department of Economics.
- Timothy Conley & Udry Christopher, 2001. "Social Learning Through Networks: The Adoption of New Agricultural Technologies in Ghana," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 668-673.
- Efe A. Ok & Levent KoÚkesen, 2000.
"Negatively interdependent preferences,"
Social Choice and Welfare,
Springer, vol. 17(3), pages 533-558.
- Yannis M. Ioannides & Linda Datcher Loury, 2002.
"Job Information Networks, Neighborhood Effects and Inequality,"
Discussion Papers Series, Department of Economics, Tufts University
0217, Department of Economics, Tufts University.
- Yannis M. Ioannides & Linda Datcher Loury, 2004. "Job Information Networks, Neighborhood Effects, and Inequality," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1056-1093, December.
- Matthew O. Jackson, 2003.
"A Survey of Models of Network Formation: Stability and Efficiency,"
Game Theory and Information
- Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences.
- Edward L. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995.
"Crime and Social Interactions,"
NBER Working Papers
5026, National Bureau of Economic Research, Inc.
- Edward E. Glaeser & Bruce Sacerdote & Jose A. Scheinkman, 1995. "Crime and Social Interactions," Harvard Institute of Economic Research Working Papers 1738, Harvard - Institute of Economic Research.
- Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
- Smith, L, 1996.
"Social Learning in a Changing World,"
96-34, Massachusetts Institute of Technology (MIT), Department of Economics.
- McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
- Cormac O Grada & Morgan Kelly, 2000.
"Market Contagion: Evidence from the Panics of 1854 and 1857,"
American Economic Review,
American Economic Association, vol. 90(5), pages 1110-1124, December.
- Kelly, M. & O'Grada, C., 1999. "Market Contagion: Evidence from the Panics of 1854 and 1857," Papers 99/19, College Dublin, Department of Political Economy-.
- Celen, Bogachan & Kariv, Shachar, 2004. "Observational learning under imperfect information," Games and Economic Behavior, Elsevier, vol. 47(1), pages 72-86, April.
- David M Kreps & Evan L Porteus, 1978.
"Temporal Resolution of Uncertainty and Dynamic Choice Theory,"
Levine's Working Paper Archive
625018000000000009, David K. Levine.
- Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010.
"A theory of Fads, Fashion, Custom and cultural change as informational Cascades,"
Levine's Working Paper Archive
1193, David K. Levine.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Roberto Burguet & Xavier Vives, 2000.
"Social learning and costly information acquisition,"
Springer, vol. 15(1), pages 185-205.
- Burguet, R. & Vives, X., 1996. "Social Learning and Costly Information Acquisition," UFAE and IAE Working Papers 323.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Smith, L. & Sorensen, P., 1996.
"Pathological Outcomes of Observational Learning,"
96-19, Massachusetts Institute of Technology (MIT), Department of Economics.
- Mark Rosenzweig & Andrew D. Foster, .
"Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture,"
_068, University of Pennsylvania.
- Foster, Andrew D & Rosenzweig, Mark R, 1995. "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1176-1209, December.
- Munshi, Kaivan, 2004. "Social learning in a heterogeneous population: technology diffusion in the Indian Green Revolution," Journal of Development Economics, Elsevier, vol. 73(1), pages 185-213, February.
- Gale, Douglas & Kariv, Shachar, 2003. "Bayesian learning in social networks," Games and Economic Behavior, Elsevier, vol. 45(2), pages 329-346, November.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
- Robin Cubitt & Chris Starmer & Robert Sugden, 1998. "On the Validity of the Random Lottery Incentive System," Experimental Economics, Springer, vol. 1(2), pages 115-131, September.
When requesting a correction, please mention this item's handle: RePEc:smu:ecowpa:0701. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bo Chen)
If references are entirely missing, you can add them using this form.