Efficiency and Equilibrium in Network Games: An Experiment

Edoardo Gallo and Chang Yan
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Edoardo Gallo: University of Cambridge and Magdalene College
Chang Yan: University of Oxford

The Review of Economics and Statistics, 2023, vol. 105, issue 6, 1515-1529

Abstract: The tension between efficiency and equilibrium is a central feature of economic systems. We examine this tradeoff in a network game with a unique Nash equilibrium in which agents can achieve a higher payoff by following a "collaborative norm." Subjects establish and maintain a collaborative norm in the circle, but the norm weakens with the introduction of one hub connected to everyone in the wheel. In complex and asymmetric networks of 15 and 21 nodes, the norm disappears and subjects' play converges to Nash. We provide evidence that subjects base their decisions on their degree, rather than the overall network structure.

Date: 2023
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