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NETWORK STRUCTURE IN A LINK FORMATION GAME: AN EXPERIMENTAL STUDY
Author(s) -
ELBITTAR ALEXANDER,
HARRISON RODRIGO,
MUÑOZ ROBERTO
Publication year - 2014
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12106
Subject(s) - comparative statics , mathematical economics , nash equilibrium , pairwise comparison , complete information , stochastic game , best response , economics , epsilon equilibrium , link (geometry) , risk dominance , repeated game , game theory , computer science , microeconomics , computer network , artificial intelligence
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 C70, C92, D20, D44, D82)