Network structure and strategic investments: An experimental analysis

Stephanie Rosenkranz and Utz Weitzel

Games and Economic Behavior, 2012, vol. 75, issue 2, 898-920

Abstract: This paper experimentally analyzes the effect of network structures on individualsʼ decisions in a game of strategic substitutes. The theoretical basis for our experiment is the model of Bramoullé and Kranton (2007). As predicted, we find that individuals are able to coordinate on equilibria, but that coordination strongly depends on the network structure. Despite frequent coordination failures, in graphs of size N=4 equilibrium play seems easier on network architectures with high (low) density and low (high) centrality. If play converges, it almost exclusively does so towards the predicted equilibria. Theoretical results with respect to welfare are also confirmed. Next to global graph structural properties we also explore the effects of local and individual factors. We find that behavior on networks is affected by the number of (direct) neighbors, but not by individualsʼ risk attitudes. Apparently, the global and the local structure of a network does not leave much explanatory room for individual effects that pertain to risk taking.

Keywords: Social networks; Experiment; Coordination; Strategic substitutes; Risk aversion (search for similar items in EconPapers)
JEL-codes: C72 C91 D00 D81 D85 H41 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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Working Paper: Network Structure and Strategic Investments: An Experimental Analysis (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:75:y:2012:i:2:p:898-920

DOI: 10.1016/j.geb.2012.02.003

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