Optimism leads to optimality: Ambiguity in network formation - Archive ouverte HAL Accéder directement au contenu
Pré-Publication, Document De Travail Année : 2020

Optimism leads to optimality: Ambiguity in network formation

Résumé

We analyze a model of endogenous two-sided network formation where players are affected by uncertainty in their opponents' decisions. We model this uncertainty using the notion of equilibrium under ambiguity (Eichberger and Kelsey, 2014). Unlike the set of Nash equilibria, the set of equilibria under ambiguity does not always include underconnected and thus inefficient networks such as the empty network. On the other hand, it may include networks with unreciprocated, one-way links, which comes with an efficiency loss as linking efforts are costly. We characterize equilibria under ambiguity and provide conditions under which increased player optimism comes with an increase in connectivity and realized benefits in equilibrium. Next, we analyze network realignment under a myopic updating process with optimistic shocks, and derive a global stability condition of efficient networks. Under this condition, called `aligned preferences', a subset of the Pareto optimal equilibrium networks is reached, specifically, networks that maximize the players' total benefits of connections.
Fichier principal
Vignette du fichier
AiNF40.pdf (523.66 Ko) Télécharger le fichier
Origine : Fichiers produits par l'(les) auteur(s)

Dates et versions

hal-03005107 , version 1 (13-11-2020)
hal-03005107 , version 2 (28-05-2021)
hal-03005107 , version 3 (30-01-2023)

Identifiants

  • HAL Id : hal-03005107 , version 3

Citer

Péter Bayer, Ani Guerdjikova. Optimism leads to optimality: Ambiguity in network formation. 2020. ⟨hal-03005107v3⟩
187 Consultations
143 Téléchargements

Partager

Gmail Facebook X LinkedIn More