Limited farsightedness in network formation
Georg Kirchsteiger,
Marco Mantovani,
Ana Mauleon and
Vincent Vannetelbosch
No 2013033, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)
Abstract:
Pairwise stability Jackson and Wolinsky [1996] is the standard stability concept in network formation. It assumes myopic behavior of the agents in the sense that they do not forecast how others might react to their actions. Assuming that agents are perfectly farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these extreme theories, but find evidence against both of them: the subjects are consistent with an intermediate rule of behavior, which we interpret as a form of limited farsightedness. On aggregate, the selection among multiple pairwise stable networks (and the performance of farsighted stability) crucially depends on the level of farsightedness needed to sustain them, and not on efficiency or cooperative considerations. Individual behavior analysis corroborates this interpretation, and suggests, in general, a low level of farsightedness (around two steps) on the part of the agents.
Keywords: network formation; experiment; myopic and farsighted stability (search for similar items in EconPapers)
JEL-codes: C91 C92 D85 (search for similar items in EconPapers)
Date: 2013-07-09
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth and nep-net
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Citations: View citations in EconPapers (13)
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Related works:
Journal Article: Limited farsightedness in network formation (2016)
Working Paper: Limited Farsightedness in Network Formation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2013033
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