Working Paper: CEPR ID: DP8263
Authors: Georg Kirchsteiger; Marco Mantovani; Ana Mauleon; Vincent Vannetelbosch
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 farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these theories. Our results provide support for farsighted stability and strongly reject the idea of myopic behavior.
Keywords: experiment; myopic; farsighted; stability; network formation
JEL Codes: C91; C92; D85
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| myopic behavior (E71) | lack of network development (D85) |
| farsighted agents (L85) | likelihood of forming complete networks (D85) |
| presence of farsighted agents (L85) | likelihood of reaching a pairwise farsightedly stable network (D85) |
| learning process over repeated rounds (C73) | increasing consistency with predictions of farsightedness (C53) |
| farsighted stability (C62) | myopic behavior (E71) |