Theory Workshop - Sanjeev Goyal

Abstract:

This paper tests a key theoretical prediction in the economic theory of networks: an individual’s activity is proportional to their (Bonacich) centrality. Our experiment offers qualified support for this relationship. There are two departures from the theoretical prediction. One, individual efforts are less sensitive to centrality than predicted by the theory across all treatments and two, efforts are higher than equilibrium for some nodes in some treatments and lower than equilibrium for some nodes in other treatments. These deviations have large effects on earnings and welfare. We propose a model of network based imitation based choice to explain these deviations.