Network Structure and Strategic Investments: An Experimental Analysis

revised version of this discussion paper published as: S. Rosenkranz, U. Weitzel (2012): “Network Structure and Strategic Investments: An Experimental Analysis”, Games and Economic Behavior, 75 (2): 898-920

37 Pages Posted: 23 May 2008 Last revised: 16 Feb 2013

See all articles by Stephanie Rosenkranz

Stephanie Rosenkranz

Utrecht University - Utrecht University School of Economics

Utz Weitzel

Utrecht University - Utrecht University School of Economics; Radboud University - Economics Department, IMR

Date Written: May 1, 2008

Abstract

This paper analyzes the effects of network positions and individual risk attitudes on individuals' strategic decisions in an experiment where actions are strategic substitutes. The game theoretic basis for our experiment is the model of Bramoullé and Kranton (2007). In particular, we are interested in disentangling the influence of global, local and individual factors. We study subjects' strategic investment decisions in four basic network structures. As predicted, we find that global factors, such as the regularity of the network structure, influence behavior. However, we also find evidence that individual play in networks is to some extent boundedly rational, in the sense that coordination is influenced by local and individual factors, such as the number of (direct) neighbors, local clustering and individuals' risk attitudes.

Keywords: Social networks, experiment, coordination, strategic substitutes, risk aversion

JEL Classification: C91, D00, D81, D85, C72, H41

Suggested Citation

Rosenkranz, Stephanie and Weitzel, Utz, Network Structure and Strategic Investments: An Experimental Analysis (May 1, 2008). revised version of this discussion paper published as: S. Rosenkranz, U. Weitzel (2012): “Network Structure and Strategic Investments: An Experimental Analysis”, Games and Economic Behavior, 75 (2): 898-920. Available at SSRN: https://ssrn.com/abstract=1136150 or http://dx.doi.org/10.2139/ssrn.1136150

Stephanie Rosenkranz (Contact Author)

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 30 253 9806 (Phone)
+31 30 253 7373 (Fax)

HOME PAGE: http://www.uu.nl/uupublish/defaculteit/persoonlijkepagi/rosenkranz/

Utz Weitzel

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Radboud University - Economics Department, IMR ( email )

Nijmegen, 6500 HK
Netherlands

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