Gallo, E. and Yan, C.

Efficiency and Equilibrium in Network Games: An Experiment

Review of Economics and Statistics, accepted

pp. 1-44 (2022)

Abstract: The tension between efficiency and equilibrium is a central feature of economic systems. We examine this trade-off in a network game with a unique Nash equilibrium in which agents can achieve a higher payoff by following a “collaborative norm”. Subjects establish and maintain a collaborative norm in the circle, but the norm weakens with the introduction of one hub connected to everyone in the wheel. In complex and asymmetric networks of 15 and 21 nodes, the norm disappears and subjects’ play converges to Nash. We provide evidence that subjects base their decisions on their degree, rather than the overall network structure.

Keywords: network, online experiment, network game, strategic complements

JEL Codes: C99, D03, D85, Z13

Author links: Edoardo Gallo  

Publisher's Link: https://doi.org/10.1162/rest_a_01105