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The Strategic Formation of Networks: Experimental Evidence

Author

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  • Carrillo, Juan
  • Gaduh, Arya
Abstract
We use a laboratory experiment to explore dynamic network formation in a six-player game where link creation requires mutual consent. The analysis of network outcomes suggests that the process tends to converge to the pairwise-stable (PWS) equilibrium when it exists and not to converge at all when it does not. When multiple PWS equilibria exist, subjects tend to coordinate on the high-payoff one. The analysis at the single choice level indicates that the percentage of myopically rational behavior is generally high. Deviations are more prevalent when actions are reversible, when marginal payoff losses are smaller and when deviations involve excessive links that can be removed unilaterally later on. There is, however, some heterogeneity across subjects.

Suggested Citation

  • Carrillo, Juan & Gaduh, Arya, 2012. "The Strategic Formation of Networks: Experimental Evidence," CEPR Discussion Papers 8757, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8757
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Comola, Margherita & Fafchamps, Marcel, 2018. "An experimental study on decentralized networked markets," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 567-591.
    2. Britta Hoyer & Stephanie Rosenkranz, 2018. "Determinants of Equilibrium Selection in Network Formation: An Experiment," Games, MDPI, vol. 9(4), pages 1-25, November.
    3. Kirchsteiger, Georg & Mantovani, Marco & Mauleon, Ana & Vannetelbosch, Vincent, 2016. "Limited farsightedness in network formation," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 97-120.
    4. Michael Caldara & Michael McBride, 2014. "An Experimental Study of Network Formation with Limited Observation," Working Papers 141501, University of California-Irvine, Department of Economics.
    5. Mariya Teteryatnikova & James Tremewan, 2015. "Stability in Network Formation Games with Streams of Payoffs: An Experimental Study," Vienna Economics Papers 1508, University of Vienna, Department of Economics.
    6. Mariya Teteryatnikova & James Tremewan, 2015. "Stability in Network Formation Games with Streams of Payoffs: An Experimental Study," Vienna Economics Papers vie1508, University of Vienna, Department of Economics.
    7. Margherita Comola & Marcel Fafchamps, 2015. "An Experimental Study of Decentralized Link Formation with Competition," NBER Working Papers 21758, National Bureau of Economic Research, Inc.
    8. Mariya Teteryatnikova & James Tremewan, 2020. "Myopic and farsighted stability in network formation games: an experimental study," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(4), pages 987-1021, June.
    9. Federica Alberti & Anna Conte & Daniela T. Di Cagno & Emanuela Sciubba, 2020. "How do we choose whom to trust? The effect of social networks on trust," Working Papers in Economics & Finance 2020-02, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.

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    More about this item

    Keywords

    Laboratory experiments; Myopic rationality; Pairwise stable equilibria; Social Networks;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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