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Learning, Network Formation And Coordination

Vega-Redondo, Fernando and Goyal, Sanjeev (2001) Learning, Network Formation And Coordination. Working Paper. Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) Working Papers. Serie AD.

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In many economic and social contexts, individual players choose their partners and also decide on a mode of behavior in interactions with these partners. This paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: we suppose that a player can establish ties with other players by investing in costly pair-wise links. We show that individual efforts to balance the costs and benefits of links sharply restrict the range of stable interaction architectures; equilibrium networks are either complete or have the star architecture. Moreover, the process of network formation has powerful effects on individual behavior: if costs of forming links are low then players coordinate on the risk-dominant action, while if costs of forming links are high then they coordinate on the efficient action.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Networks; social learning; equilibrium selection
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 08 Jan 2013 10:13
Last Modified: 08 Jan 2013 10:13

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