DP6855 Network Structure and Strategic Investments: An Experimental Analysis

Author(s): Stephanie Rosenkranz, Utz Weitzel
Publication Date: June 2008
Keyword(s): coordination, experiment, risk aversion, Social networks, strategic substitutes
JEL(s): C72, C91, D00, D81, D85, H41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6855

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.