Abstract |
How does social and economic interaction of agents within large populations depend on their perception of the matching-structure?
When do evolutionary dynamics with limited information processing lead to stable outcomes prescribed by rational concepts?
In the chapter "Anticipated Stability in Social and Economic Networks", I model agents to meet with non-uniform probabilities. As friends or colleagues are more likely to interact frequently, this deviation seems to be plausible. A comfortable approach to model such conditional interaction is the one of network formation. I transfer Jackson & Wolinsky (1996) and its dynamic interpretation Jackson & Watts (2002) to a non-cooperative model of network formation. Unsurprisingly, a pairwise stable network results from a Nash equilibrium. My focus rather is on closed cycles. A closed cycle is a subset of networks all of whose members are active periodically. Such a set could also be interpreted as a random graph. Jackson & Watts (2002) show that the process of network formation eventually stops in a pairwise stable network or is stuck in a closed cycle. The point of my paper is that this result crucially depends on the assumption of myopic optimization. I propose that agents may hold beliefs that are consistent with actual behavior for networks that have distance less than κ to the current network and optimize given these beliefs. The parameter κ captures the computational capabilites of the agents. If κ is large enough, small cycles can be excluded if agents anticipate such cycles. more...
|
