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Efficiency and Equilibrium in Network Games: An Experiment

Author

Listed:
  • Edoardo Gallo

    (University of Cambridge and Magdalene College)

  • Chang Yan

    (University of Oxford)

Abstract

The tension between efficiency and equilibrium is a central feature of economic systems. We examine this tradeoff in a network game with a unique Nash equilibrium in which agents can achieve a higher payoff by following a "collaborative norm." Subjects establish and maintain a collaborative norm in the circle, but the norm weakens with the introduction of one hub connected to everyone in the wheel. In complex and asymmetric networks of 15 and 21 nodes, the norm disappears and subjects' play converges to Nash. We provide evidence that subjects base their decisions on their degree, rather than the overall network structure.

Suggested Citation

  • Edoardo Gallo & Chang Yan, 2023. "Efficiency and Equilibrium in Network Games: An Experiment," The Review of Economics and Statistics, MIT Press, vol. 105(6), pages 1515-1529, November.
    • Handle: RePEc:tpr:restat:v:105:y:2023:i:6:p:1515-1529
    DOI: 10.1162/rest_a_01105
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    Cited by:

    1. Choi, S. & Goyal, S. & Guo, F. & Moisan, F., 2024. "Experimental Evidence on Group Size Effects in Network Formation Games," Cambridge Working Papers in Economics 2417, Faculty of Economics, University of Cambridge.

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