Abstracts of current working papers

This version: June 2017.

We investigate how the network structure of financial linkages and uncertainty about the location of a shock affect the likelihood of contagion and the formation of prices in a double auction market experiment. Core-periphery networks are highly susceptible to contagion and generate resales of assets that exacerbate financial contagion beyond the mechanical role of network structure. In contrast, contagion is minimal on circle networks and market prices remain stable even in the presence of large shocks. Uncertainty on the location of the shock has little influence. The traders' level of comprehension of the network-driven risk is predictive of their behavior and the likelihood of bankruptcy.

Keywords: contagion, financial network, experimental asset market. JEL: C92, D40, D85, L14.

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.