Bounded rationality and repeated network formation

Sylvain Béal (1) , Nicolas Quérou (2)

1 CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne
2 School of Management and Economics

We define a finite-horizon repeated network formation game with consent and study the differences induced by two levels of individual rationality. Perfectly rational players will remain unconnected at the equilibrium, while nonempty equilibrium networks may form when players are assumed to behave as finite automata of limited complexity. We provide structural properties of the sequences of networks which are likely to form in Nash and subgame perfect Nash equilibria of the repeated game. For instance, players can form totally different connected networks at each period or the sequence of networks can exhibit a total order relationship.

Keywords: Repeated network formation game; Two-sided link formation costs; Bounded rationality; Automata; Subgame perfection

Domains: Economics and Finance

Sylvain Béal, Nicolas Quérou. Bounded rationality and repeated network formation. Mathematical Social Sciences, 2007, 54 (1), pp.71-89. ⟨10.1016/j.mathsocsci.2007.03.003⟩. ⟨ujm-00162449⟩