Network Structure in a Link Formation Game: An Experimental Study

23 Pages Posted: 23 Aug 2014

See all articles by Alexander Elbittar

Alexander Elbittar

Centro de Investigación y Docencia Económicas; CIDE

Rodrigo Harrison

Pontifical Catholic University of Chile - Institute of Economics

Roberto E. Munoz

Universidad Tecnica Federico Santa Maria

Date Written: October 2014

Abstract

In this article, we use an experiment to evaluate the performance of alternative refinements in a Myersonian link formation game with a supermodular payoff function. Our results show that a non‐cooperative refinement, the global games (GG) approach, outperforms alternative cooperative refinements (strong Nash equilibrium, coalition‐proof Nash equilibrium, and pairwise stable Nash equilibrium) in explaining the observed experimental behavior in the static game of complete information with three players. The results are robust to some comparative statics and the GG approach shows a high predictive power under incomplete information. However, under repeated interaction or with a greater number of players, the GG approach loses predictive power, but so do the cooperative refinements. The results illustrate the importance of coordination failure in practice and the need to design mechanisms to reduce this effect in practical decision‐making problems.

JEL Classification: C70, C92, D20, D44, D82

Suggested Citation

Elbittar, Alexander and Harrison, Rodrigo and Munoz, Roberto E., Network Structure in a Link Formation Game: An Experimental Study (October 2014). Economic Inquiry, Vol. 52, Issue 4, pp. 1341-1363, 2014, Available at SSRN: https://ssrn.com/abstract=2485640 or http://dx.doi.org/10.1111/ecin.12106

Alexander Elbittar (Contact Author)

Centro de Investigación y Docencia Económicas ( email )

Carretera México- Toluca 3655
Col. Lomas de Santa Fe
Mexico City, DF 01210
Mexico

HOME PAGE: http://www.cide.edu/investigador/profile.php?IdInvestigador=1125

CIDE ( email )

Carretera México- Toluca 3655
Col. Lomas de Santa Fe
Mexico City, DF 01210
Mexico

HOME PAGE: http://www.cide.edu/investigador/profile.php?IdInvestigador=1125

Rodrigo Harrison

Pontifical Catholic University of Chile - Institute of Economics ( email )

Casilla 76
Correo 17
Santiago
Chile

Roberto E. Munoz

Universidad Tecnica Federico Santa Maria ( email )

Avenue Spain 1680
Valparaiso Square 110
Chile

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