Template-Type: ReDIF-Paper 1.0
Author-Name: Goyal, S.
Author-Name-Last: Goyal
Author-Name-First: Sanjeev
Author-Person: pgo329
Author-Name: Vega-Redondo, F.
Author-Name-Last: Vega-Redondo
Title: Learning, Network Formation and Coordination
Abstract: 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.
Creation-Date: 2000-11-10
File-URL: https://repub.eur.nl/pub/6931/2000-0931.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI 9954-/A
Number: EI 9954-/A
Classification-JEL: D83
Keywords: coordination, learning, network formation
Handle: RePEc:ems:eureir:6931