Article ID Journal Published Year Pages File Type
7242782 Journal of Economic Behavior & Organization 2016 51 Pages PDF
Abstract
Pairwise stability (Jackson and Wolinsky, 1996) is the standard stability concept in network formation. It is a myopic notion in the sense that it only considers the immediate benefits of the players. A different perspective investigates perfect farsightedness, proposing related stability concepts. We design a simple network formation experiment to test these extreme theories, but find evidence against both of them: both myopically and farsightedly stable networks fail to emerge when they are not immune to limitedly farsighted deviations. The selection among multiple pairwise stable networks (and the performance of farsighted stability) crucially depends on the level of farsightedness needed to sustain them, and not on efficiency or cooperative considerations.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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