An Experimental Study of Decentralized Link Formation with Competition

57 Pages Posted: 30 Nov 2015

See all articles by Margherita Comola

Margherita Comola

Paris School of Economics (PSE); Université Paris I Panthéon-Sorbonne

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies

Date Written: November 2015

Abstract

We design a laboratory experiment to investigate bilateral link formation in a setting where payoffs are pair-specific. Our link formation rule is decentralized and players can make link offers and counter-offers, as in a Beckerian marriage market. The game is designed in such a way that a stable equilibrium configuration exists and does not depend on conditions such as initial configuration or order of move. We test whether the theoretical equilibrium is obtained under experimental conditions, and which individual motivations and decision-making techniques lead players to depart from myopic best response. We find that players are remarkably good at attaining a stable equilibrium configuration, which happens in 86% of the games. Results show that complete information speeds up the game via self-censoring, and that sub-optimal choices are mostly driven by over-thinking behavior and reluctance to accept to link with players who have been disloyal earlier in the game.

Suggested Citation

Comola, Margherita and Fafchamps, Marcel, An Experimental Study of Decentralized Link Formation with Competition (November 2015). NBER Working Paper No. w21758, Available at SSRN: https://ssrn.com/abstract=2696824

Margherita Comola (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

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