We study the stability of social and economic networks when players are farsighted. In particular, we examine whether the networks formed by farsighted players are different from those formed by myopic players. We adopt the notion of pairwise farsightedly stable sets (Herings, Mauleon, and Vannetelbosch 2009). We first show that under the componentwise egalitarian allocation rule, the set of strongly efficient networks and the set of pairwise (myopically) stable networks that are immune to coalitional deviations are the unique pairwise farsightedly stable set if and only if the value function is top convex. We then investigate in some classical models of social and economic networks whether the pairwise farsightedly stable sets of networks
We study the stability of social and economic networks when players are farsighted. We first provide an algorithm that characterizes the unique pairwise and groupwise farsightedly stable set of networks under the componentwise egalitarian allocation rule. We then show that this set coincides with the unique groupwise myopically stable set of networks but not with the unique pairwise myopically stable set of networks. We conclude that, if groupwise deviations are allowed then whether players are farsighted or myopic does not matter; if players are farsighted then whether players are allowed to deviate in pairs only or in groups does not matter
Evidences suggest that in some villages of developing countries, agents rely on mutual insurance agreements to deal with income or expenditure shocks. In this paper we analyze which risk-sharing networks can be sustained in the long run when individuals are farsighted rather than myopic, in the sense that they are able to forecast how other agents would react to their actions. In particular, we study whether the farsightedness of the agents leads to a reduction of the tension between stability and e¢ ciency that arises when individuals are myopic. We …nd that if the cost of establishing a mutual insurance agreement is extremely high or extremely small, myopic and farsighted agents form the same risk-sharing networks. For intermediate costs, the farsightedness of the agents plays a crucial role in determining which network is stable. In addition, if a con ‡ict between myopic stability and e¢ ciency exists, it may be solved with the introduction of farsighted agents.JEL classi…cation: C70, D85, O17
The paper analyzes the role of the structure of communication-i.e. who is talking with whom-on the choice of messages, on their credibility and on actual play. We run an experiment in a three-player coordination game with Pareto ranked equilibria, where a pair of agents has a profitable joint deviation from the Pareto-dominant equilibrium. According to our analysis of credibility, the subjects should communicate and play the Pareto optimal equilibrium only when communication is public. When pairs of agents exchange messages privately, the players should play the Pareto dominated equilibrium and disregard communication. The experimental data conform to our predictions: the agents reach the Pareto-dominant equilibrium only when announcing to play it is credible. When private communication is allowed, lying is prevalent, and players converge to the Pareto-dominated equilibrium. Nevertheless, at the individual level, players' beliefs and choices tend to react to messages even when these are non-credible.
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