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An experimental study of parternship formation in social networks

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Working paper
Author/s: 
Francis Bloch, Bhaskar Dutta, Stéphane Robin, Min Zhu
Issue number: 
06/18
Series: 
Ashoka University Discussion Paper Series in Economics
Publisher: 
Ashoka University
Year: 
2018
This paper reports on laboratory experiments on the formation of partnerships in social networks. Agents randomly request favors and turn to their neighbors to form a partnership where they commit to provide the favor when requested. The formation of a partnership is modeled as a sequential game, which admits a unique subgame perfect equilibrium resulting in the formation of the maximum number of partnerships. Experimental results show that a large fraction of the subjects (75%) play according to their subgame perfect equilibrium strategy and reveals that the efficient maximum matching is formed over 78% of the times. When subjects deviate from their best responses, they accept to form partnerships too early. The incentive to accept when it is optimal to reject is positively correlated with subjects’ risk aversion, and players employ simple heuristics – like the presence of a captive partner – to decide whether they should accept or reject the formation of a partnership.
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