Theory Workshop - Fulin Guo
Fulin Guo with Sanjeev Goyal, Syngjoo Choi, Fred Moisan
Title: 'An Experiment on a Linking Game' (Fulin Guo with Syngjoo Choi, Sanjeev Goyal and Frederic Moisan)
This paper conducts an experiment based on the unilateral link formation model by Bala and Goyal (2000). The theory provides sharp predictions on the efficient network structure: star networks in the case of two-way value flow and circle networks in the case of one-way value flow. It is not clear, however, what sorts of networks will actually emerge from agents’ connection decisions given the complexity of the decision problem. The results show that the network structure is relatively close to the theoretical prediction in the two-way case under both small (n=10) and large (n=50) groups. That is, agents create sparse, unequal, and small average distance networks and achieve high aggregate efficiency in the case of two-way flow. The deviation from the theoretical prediction is larger in the one-way case, especially when the group size is large (n=50). There is no evidence that individuals’ actions are noisier in the one-way case as compared to the two-way model. Rather, it is due to the differential sensitivity of the network to noise in agent’s decision across the two models.