Network Structure and Strategic Investments: An Experimental Analysis

Abstract

This paper analyzes the effects of network positions and individual risk attitudes on individuals' strategic decisions in an experiment where actions are strategic substitutes. The game theoretic basis for our experiment is the model of Bramoullé and Kranton (2007). In particular, we are interested in disentangling the influence of global, local and individual factors. We study subjects' strategic investment decisions in four basic network structures. As predicted, we find that global factors, such as the regularity of the network structure, influence behavior. However, we also find evidence that individual play in networks is to some extent boundedly rational, in the sense that coordination is influenced by local and individual factors, such as the number of (direct) neighbors, local clustering and individuals' risk attitudes.

Experimental Games on Networks: Underpinnings of Behavior and Equilibrium Selection

“…With substitutes, there are more subtle considerations, since the equilibria are not Pareto-ranked and, therefore, there are individuals in different positions that (strictly) prefer different equilibria. Our results suggest that, in this case, security/stability considerations play an important role in the equilibrium selected (in line with the findings of Rosenkranz and Weitzel (2012)).…”

“…Within the scope of experimental games of strategic substitutes played in networks, the most closely related paper to our study is Rosenkranz and Weitzel (2012). They considered the public-good game on networks studied theoretically by Bramoullé and Kranton (2007), which is similar to our environments with strategic substitutes and complete information.…”

“…This is not unfamiliar in other coordination games. For example, Rosenkranz and Weitzel (2012) reported that, when they found convergence, it was to equilibria where each inactive player is connected to at least two active players.…”

Social Hierarchies: A Laboratory Study on Punishment Patterns Across Networks

“…There are also experiments on public good games played in networks without any formal sanctioning institution. For instance, Fatas, Meléndez-Jiménez, and Solaz (2010) study how four-person groups repeatedly play a standard linear VCM in our same four network structures, and Rosenkranz and Weitzel (2012) test in the lab Bramoullé and Kranton's (2007) model of public good games in networks. There are also experimental papers that study cooperation in prisoners' dilemma games played in networks (Cassar 2007;Kirchkamp and Nagel 2007), and Charness et al (2014) experimentally study games of strategic complements and games of strategic substitutes in networks (including best shot games).…”