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Faculty of Economics

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Goyal, S., Hernández, P., Martínez-Cánovasz, G., Moisan, F., Muñoz-Herrera, M. and Sánchez, A.

Integration and Diversity

CWPE1721

Abstract: We study a setting where individuals prefer to coordinate with others but they differ on their preferred action. Our interest is understanding the role of linking in shaping behavior. So we consider the situation in which interactions are exogenous and a situation where individuals choose links that determine the interactions. Theory is permissive in both settings: conformism (on either of the actions) and diversity (with different groups choosing their preferred actions) are both sustainable in equilibrium. Our experiments reveal that, in an exogenous complete network, subjects choose to conform to the majority's preferred action. By contrast, when linking is free and endogenous, subjects form dense networks (biased in favour of linking within same preferences type) but choose diverse actions. The convergence to diverse actions is faster under endogenous linking as compared to the convergence to conformity on the majority's preferred action under the exogenous complete network. Thus our experiments suggest that individuals use links to resolve the coordination problem.

Author links: Sanjeev Goyal  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1721.pdf

Open Access Link: https://doi.org/10.17863/CAM.35571