Diffusion of Behavior and Equilibrium Properties in Network Games

Abstract

We analyze games on social networks where agents select one of two actions (whether or not to adopt a new technology, withdraw money from the bank, become politically active, etc.). Agents' payoffs from each of the two actions depend on how many neighbors she has, the distribution of actions among her neighbors, and a possibly idiosyncratic cost for each of the actions. We analyze the diffusion of behavior when in each period agents choose a best response to last period's behavior. We characterize how the equilibrium points of such a process and their stability depend on the network architecture, the distribution of costs, and the payoff structure. We also illustrate how the dynamics of behavior depends on the number of neighbors that agents have. Our results have implications and applications to marketing, epidemiology, financial contagions, and technology adoption.JEL classification: C45, C70, C73, D85, L15. * We are grateful for financial support from the Center for Advanced Studies in the Behavioral Sciences and the Guggenheim Foundation. We thank Tanya Rosenblat for a discussion of the paper and Brian Rogers for comments.

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