DP8263 Myopic or Farsighted? An Experiment on Network Formation

Author(s): Georg Kirchsteiger, Marco Mantovani, Ana Mauleon, Vincent Vannetelbosch
Publication Date: February 2011
Keyword(s): experiment, myopic and farsighted stability, Network formation
JEL(s): C91, C92, D85
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8263

Pairwise stability (Jackson and Wolinsky, 1996) is the standard stability concept in network formation. It assumes myopic behavior of the agents in the sense that they do not forecast how others might react to their actions. Assuming that agents are farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these theories. Our results provide support for farsighted stability and strongly reject the idea of myopic behavior.