Network structure and strategic investments: An experimental analysis

Stephanie Rosenkranz*, Utz Weitzel

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper experimentally analyzes the effect of network structures on individuals' decisions in a game of strategic substitutes. The theoretical basis for our experiment is the model of Bramoullé and Kranton (2007). As predicted, we find that individuals are able to coordinate on equilibria, but that coordination strongly depends on the network structure. Despite frequent coordination failures, in graphs of size N= 4 equilibrium play seems easier on network architectures with high (low) density and low (high) centrality. If play converges, it almost exclusively does so towards the predicted equilibria. Theoretical results with respect to welfare are also confirmed. Next to global graph structural properties we also explore the effects of local and individual factors. We find that behavior on networks is affected by the number of (direct) neighbors, but not by individuals' risk attitudes. Apparently, the global and the local structure of a network does not leave much explanatory room for individual effects that pertain to risk taking.

Original languageEnglish
Pages (from-to)898-920
Number of pages23
JournalGames and Economic Behavior
Volume75
Issue number2
DOIs
Publication statusPublished - 1 Jul 2012
Externally publishedYes

Keywords

  • Coordination
  • Experiment
  • Risk aversion
  • Social networks
  • Strategic substitutes

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