Abstracts of current working papers

Networks in the laboratory (with Syngjoo Choi and Shachar Kariv)

This version: March 2015. Prepared for The Oxford Handbook on the Economics of Networks, edited by Y. Bramoulle, A. Galeotti, and B. Rogers, Oxford University Press.

There is a large body of empirical work which studies the influence of network structure on economic outcomes, but these observational studies are subject to identification problems. In the laboratory, by contrast, we can control subjects’ position in the network and their information. This provides an opportunity to test the predictions of network theories and study the effects of variables about which our models have little to say. This chapter surveys network research in experimental economics. The first part discusses experiments of games played on networks, focusing on how different architectures lead to different outcomes. The second part discusses trading in networks where connections represent potential trading relations. The aim of these experiments is to investigate the role of network architecture in determining the efficiency of markets. Overall, the results show that the clarity that is achieved by putting behavior “under the microscope” is well worth the necessary simplification.

Keywords: experiments, social networks, network games, markets, coordination, public goods, cooperation, social learning, communication, trading. JELC91, C92, D85, L14, Z13.

This version: January 2015.

Abstract. The tension between efficiency and equilibrium is a central feature of economic systems. In many contexts, social networks mediate this trade-off: an individual's network position determines equilibrium play, but at the same time social relations allow coordination on a more efficient norm of behavior. We examine this trade-off in a game of strategic complements played on different networks. The game has a unique interior Nash equilibrium, but subjects can achieve a higher payoff by following a "collaborative norm". In a simple and symmetric network, the circle, subjects are able to establish and maintain a collaborative norm. In a simple but asymmetric network, the wheel, the collaborative norm persists, but with play closer to equilibrium. In more complex and asymmetric networks of 15 and 21 nodes, the norm disappears and Nash point predictions exactly describe play on every node of both networks. We provide evidence that subjects base their decisions on their degree, rather than the overall network structure. Methodologically, the paper shows the capabilities of UbiquityLab: a novel platform to conduct interactive experiments online with a large number of participants.

Keywords: network, online experiment, network game, strategic complements. JEL: C99, D03, D85, Z13.

This version: July 2015.

Abstract. This paper proposes and tests experimentally a dynamic model of bargaining to analyze decentralized markets where buyers and sellers obtain information about past deals through their social network. There is a unique equilibrium outcome which depends crucially on the peripheral (least connected) individuals in each group. The main testable predictions are that groups with high density and/or low variability in the number of connections across individuals allow their members to obtain a better deal. These predictions are tested in a lab experiment through 4 treatments that vary the network that groups of 6 subjects are assigned to. The results of the experiment lend support to the theoretical predictions: subjects converge to a high equilibrium demand if they are assigned to a network that is dense and/or has low variability in number of connections across members. An extension explores an alternative set-up in which buyers and sellers belong to the same social network: if the network is regular and the agents are homogeneous then the unique equilibrium division is 50-50.

Keywords: experiment, network, communication, noncooperative bargaining, 50-50 division. JEL: C91, C92, D83, C73.