Heuristic Decision Making in Network Linking

Abstract

Network formation among individuals constitutes an important part of many OR processes, but relatively little is known about how individuals make their linking decisions in networks. This article provides an investigation of heuristic effects in individual linking decisions for network formation in an incentivized lab-experimental setting.Our mixed logit analysis demonstrates that the inherent complexity of the network linking setting causes individuals' choices to be systematically less guided by payof but more guided by simpler heuristic decision cues, and even stronger less motivated by the payoff for others. Furthermore, we show that the specific complexity factors value transferability and social tradeoff aggravate the former effect. These heuristic effects have important research and policy implications in areas that involve network formation.JEL Classification: A14, C25, C91, D85

Pairwise stable networks in homogeneous societies with weak link externalities

“…Ordinal link externalities are robust in the sense that they still hold when utilities are perturbed by small error terms, e.g. as in Harmsen-van Hout et al (2016).…”

Essays on the economics of social networks

“…Harmsen-van Hout et al (2016) show experimentally that when faced with linking choices involving increased complexity of payoffs, experimental subjects resort to simplified decision rules, i.e. heuristics.…”

“…2 The authors identify two factors that are related to payoffs only qualitatively, but have been used by the experimental subjects: whether or not the choice option involves a deviation from the status quo and the number of direct neighbours of the (potential) linking partner. They call for future models to include the human tendencies 3 "to base complex linking decisions on heuristic cues like... node degree rather than exact payoff" (Harmsen-van Hout et al, 2016), as found by their analysis.…”

“…the people involved are not worse off with the link than without it. Taking the results from one of the few laboratory experiments on network formation, Harmsen-van Hout et al (2016), the chapter examines the pairwise stable networks which result from applying a particular heuristic for allocating the agents' scarce resources amongst their neighbours. The results demonstrate that heuristics can be a decisive factor in social network formation.…”