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Building Social Networks

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  • Robert P. Gilles
  • Sudipta Sarangi

Abstract

We examine the process of building social relationships as a non-cooperative game that requires mutual consent and involves reaching out to others at a cost. Players create their social network from amongst their set of acquaintances. Having acquaintances allows players to form naive beliefs about the feasibility of building direct relationships with their acquaintances. These myopic beliefs describe how the other players are expected to respond to the initiation of a link by a player. We introduce a stability concept called "monadic stability" where agents play a best response to their formed myopic beliefs such that these beliefs are self-confirming. The resulting equilibrium networks form subset of the set of pairwise stable networks.

Suggested Citation

  • Robert P. Gilles & Sudipta Sarangi, 2006. "Building Social Networks," Discussion Papers of DIW Berlin 642, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp642
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    References listed on IDEAS

    as
    1. Sudipta Sarangi & Robert P. Gilles, 2005. "Stable Networks and Convex Payoffs," Departmental Working Papers 2005-13, Department of Economics, Louisiana State University.
    2. repec:ebl:ecbull:v:3:y:2003:i:5:p:1-9 is not listed on IDEAS
    3. Stef Tijs & Anne van den Nouweland & Bhaskar Dutta, 1998. "Link formation in cooperative situations," International Journal of Game Theory, Springer;Game Theory Society, vol. 27(2), pages 245-256.
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    7. Bloch, Francis & Jackson, Matthew O., 2007. "The formation of networks with transfers among players," Journal of Economic Theory, Elsevier, vol. 133(1), pages 83-110, March.
    8. Fudenberg, Drew & Levine, David K, 1993. "Self-Confirming Equilibrium," Econometrica, Econometric Society, vol. 61(3), pages 523-545, May.
    9. Jackson, Matthew O. & Watts, Alison, 2002. "On the formation of interaction networks in social coordination games," Games and Economic Behavior, Elsevier, vol. 41(2), pages 265-291, November.
    10. Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences.
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    Cited by:

    1. Subhadip Chakrabarti & Robert Gilles, 2007. "Network potentials," Review of Economic Design, Springer;Society for Economic Design, vol. 11(1), pages 13-52, June.
    2. Beal, Sylvain & Querou, Nicolas, 2007. "Bounded rationality and repeated network formation," Mathematical Social Sciences, Elsevier, vol. 54(1), pages 71-89, July.
    3. Rodrigo Harrison & Roberto Muñoz, 2008. "Stability and equilibrium selection in a link formation game," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(2), pages 335-345, November.

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    More about this item

    Keywords

    Social networks; network formation; pairwise stability; trust; self-confirming equilibrium;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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