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Determinants of Equilibrium Selection in Network Formation: An Experiment

Britta Hoyer () and Stephanie Rosenkranz ()
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Britta Hoyer: Faculty of Business Administration and Economics, Paderborn University, 33098 Paderborn, Germany

Games, 2018, vol. 9, issue 4, 1-25

Abstract: Theoretical models on network formation focus mostly on the stability and efficiency of equilibria, but they cannot deliver an understanding of why specific equilibrium networks are selected or whether they are all actually reachable from any starting network. To study factors affecting equilibrium selection, we designed a network formation experiment with multiple equilibria, which can be categorized in terms of the demand on players’ farsightedness and robustness to errors. In a second scenario, we increase the need for farsighted behavior by players, as well as the perceived riskiness of equilibria by adding a stage in which the network is disrupted. This setting allows us to analyze the interplay between the need for farsightedness and perceived risk of errors and its effect on network formation and equilibrium selection.

Keywords: network disruption; experiment; network formation; non-cooperative network games (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2018
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