Dynamics and stability of social and economic networks: Experimental evidence

•Test of dynamic formation of networks.•Pairwise Nash stability predicts well the outcome of network game.•Subjects predominantly choose myopic rational actions.•There is heterogeneity in sophistication of subjects. We use a laboratory experiment to test the dynamic formation of networks in a six-su...

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Bibliographic Details
Published inJournal of economic behavior & organization Vol. 188; pp. 1144 - 1176
Main Authors Carrillo, Juan D., Gaduh, Arya
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.08.2021
Subjects
Laboratory experiments
Myopic rationality
Social networks
Stable networks
D85
Social networks
Myopic rationality
Stable networks
Laboratory experiments
C92
C73
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Summary:•Test of dynamic formation of networks.•Pairwise Nash stability predicts well the outcome of network game.•Subjects predominantly choose myopic rational actions.•There is heterogeneity in sophistication of subjects. We use a laboratory experiment to test the dynamic formation of networks in a six-subject game where link formation requires mutual consent. First, the game tends to converge to the pairwise-Nash stable (PNS) network when it exists, and to not converge but remain in the closed cycle when no PNS network exists. When two Pareto-rankable PNS networks exist, subjects often coordinate on the high-payoff one. Second, the analysis of single decisions indicates the predominance of myopic rational choices, but it also highlights interesting systematic deviations, especially when actions are more easily reversible and when they involve smaller marginal losses. Third, behavior is heterogeneous across subjects, with varying degrees of sophistication.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2021.06.021