Abstract
In recent work on non-cooperative network formation star-shaped networks play an important role. In a particular theoretical model of Bala and Goyal (2000) center-sponsored stars are the only strict Nash networks. In testing this theoretical model, Falk and Kosfeld (2003) do not find experimental evidence that players select the center-sponsored star. Based on a slight modification of Bala and Goyal’s model, we design a network formation experiment in which, depending on link costs, periphery-sponsored stars and the empty network are the only strict Nash networks. We observe that almost all groups not only reach a strict Nash network once but also switch the center player in periphery-sponsored stars several times. The main innovation in our experiment is to use a continuous time framework which we believe to be a more realistic setting to study behavior in network formation situations and which makes coordination on stars much easier than simultaneous strategy adaptation in discrete time.
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JEL Classification C72 · C92 · D81
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Berninghaus, S.K., Ehrhart, KM. & Ott, M. A network experiment in continuous time: The influence of link costs. Exp Econ 9, 237–251 (2006). https://doi.org/10.1007/s10683-006-9125-1
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DOI: https://doi.org/10.1007/s10683-006-9125-1