Dynamics and stability of social and economic networks: Experimental evidence

Juan D. Carrillo and Arya Gaduh

Journal of Economic Behavior & Organization, 2021, vol. 188, issue C, 1144-1176

Abstract: We use a laboratory experiment to test the dynamic formation of networks in a six-subject game where link formation requires mutual consent. First, the game tends to converge to the pairwise-Nash stable (PNS) network when it exists, and to not converge but remain in the closed cycle when no PNS network exists. When two Pareto-rankable PNS networks exist, subjects often coordinate on the high-payoff one. Second, the analysis of single decisions indicates the predominance of myopic rational choices, but it also highlights interesting systematic deviations, especially when actions are more easily reversible and when they involve smaller marginal losses. Third, behavior is heterogeneous across subjects, with varying degrees of sophistication.

Keywords: Social networks; Stable networks; Myopic rationality; Laboratory experiments (search for similar items in EconPapers)
JEL-codes: C73 C92 D85 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:188:y:2021:i:c:p:1144-1176

DOI: 10.1016/j.jebo.2021.06.021

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