Working Paper: CEPR ID: DP8732
Authors: Roberta Dess; Edoardo Gallo; Sanjeev Goyal
Abstract: We study individual ability to memorize and recall information aboutfriendship networks using a combination of experiments and survey-based data. In the experiment subjects are shown a network, in which their location is exogenously assigned, and they are then asked questions about the network after it disappears. We find that subjects exhibit three main cognitive biases: (i) they underestimate the mean degree compared to the actual network; (ii) they overestimate the number of rare degrees; (iii) they underestimate the number of frequent degrees. We then analyze survey data from two `real' friendship networks from a Silicon Valley firm and from a University Research Center. We find, somewhat remarkably, that individuals in these real networks also exhibit these biases.The experiments yield three further findings: (iv) network cognitionis affected by the subject's location, (v) the accuracy of networkcognition varies with the nature of the network, and (vi) networkcognition has a significant effect on economic decisions.
Keywords: cognition; social networks
JEL Codes: D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cognitive biases (D91) | economic decision-making (D87) |
| Network architecture (D85) | accuracy of network cognition (D85) |
| cognition (D83) | perceived network structure (D85) |
| Location in the network (D85) | perceived network structure (D85) |
| Location in the network (D85) | cognition (D83) |
| Cognitive biases (D91) | deviations in perceived network characteristics (D85) |