The Role of Beliefs and Confidence in Building Social Networks

Sudipta Sarangi and Robert P. Gilles

Departmental Working Papers from Department of Economics, Louisiana State University

Abstract: We examine the process of building social relationships in a non-cooperative game where such link formation is costly and requires mutual consent. We provide a noncooperative foundation for several link-based network stability concepts that have been studied in the literature on network formation. In our model players form myopic beliefs about the feasibility of building direct relationships with their acquaintances. These beliefs represent how each neighbor of a player is expected to respond to the initiation of a link by that player. We introduce a stability concept called �monadic stability� where agents play a best response to their formed myopic beliefs such that these beliefs are self-confirming. The resulting equilibrium networks form a class of networks that are shown to have some very appealing properties.

Date: 2005-12
New Economics Papers: this item is included in nep-evo, nep-gth and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:lsu:lsuwpp:2005-15

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