Discussion Paper Details

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Title: Network Structure and Strategic Investments: An Experimental Analysis

Author(s): Stephanie Rosenkranz and Utz Weitzel

Publication Date: June 2008

Keyword(s): coordination, experiment, risk aversion, Social networks and strategic substitutes

Programme Area(s): Industrial Organization

Abstract: This paper analyzes the effects of network positions and individual risk attitudes on individuals' strategic decisions in an experiment where actions are strategic substitutes. The game theoretic basis for our experiment is the model of Bramoullé and Kranton (2007). In particular, we are interested in disentangling the influence of global, local and individual factors. We study subjects' strategic investment decisions in four basic network structures. As predicted, we find that global factors, such as the regularity of the network structure, influence behavior. However, we also find evidence that individual play in networks is to some extent boundedly rational, in the sense that coordination is influenced by local and individual factors, such as the number of (direct) neighbors, local clustering and individuals' risk attitudes.

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Bibliographic Reference

Rosenkranz, S and Weitzel, U. 2008. 'Network Structure and Strategic Investments: An Experimental Analysis'. London, Centre for Economic Policy Research.