Bounded Rationality and Repeated Network Formation

Nicolas Querou and Sylvain Béal

No 2006.74, Working Papers from Fondazione Eni Enrico Mattei

Abstract: We define a finite-horizon repeated network formation game with consent, and study the differences induced by different levels of individual rationality. We prove that perfectly rational players will remain unconnected at the equilibrium, while nonempty equilibrium networks may form when, following Neyman (1985), players are assumed to behave as finite automata. We define two types of equilibria, namely the Repeated Nash Network (RNN), in which the same network forms at each period, and the Repeated Nash Equilibrium (RNE), in which different networks may form. We state a sufficient condition under which a given network may be implemented as a RNN. Then, we provide structural properties of RNE. For instance, players may form totally different networks at each period, or the networks within a given RNE may exhibit a total order relationship. Finally we investigate the question of efficiency for both Bentham and Pareto criteria.

Keywords: Repeated Network Formation Game; Two-sided Link Formation Costs; Bounded Rationality; Automata (search for similar items in EconPapers)
JEL-codes: C72 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-cbe, nep-gth, nep-mic, nep-net and nep-soc
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Related works:
Journal Article: Bounded rationality and repeated network formation (2007)
Working Paper: Bounded rationality and repeated network formation (2007)
Working Paper: Bounded Rationality and Repeated Network Formation (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2006.74

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