Networkin’ it

1. Principles of Network Development and Evolution: An Experimental StudyA review of the paper by Callander and PlottbyKash Barker Callander, S., and C.R. Plott. 2005. Principles of Network Development and Evolution: An Experimental Study. Journal of Public Economics. Vol. 89. pp. 1469-1495.

2. Networkin’ it • Networks used to describe many physical systems and theoretical environments • paper cites labor market participation, internal organization of firms, social interactions • what principles guide the unregulated development and evolution of networks?

3. Questions addressed here • Do networks converge to steady state outcomes and what are the properties of this state? • What principles underlie network development and evolution? • How can these principles be understood in the context of individual decisions and behavior?

4. Preliminaries • Network is a set of connected nodes • each node is a separated decisionmaking agent • links represent a transfer of “stuff” • node B connects to node A to receive a benefit at some cost • flow of stuff is “without decay” • network structure is common knowledge to each agent

5. Principles • Three principles of network formation • Nash equilibrium • no individual can improve personal gains by some unilateral change of action • efficiency • proportion of gains received relative to potential gains • focalness • refers to geographic location in the experiment

6. Types of networks wheel counterclockwise wheel

7. Types of networks an efficient nonfocal wheel an efficient star

8. Sets of parameters • Authors used four sets of parameters for link connection cost and for the value of information

9. Model predictions • For each set of parameters, the following network types were predicted for each principle

10. Comparisons

11. Types of networks wheel counterclockwise wheel

12. Types of networks an efficient nonfocal wheel an efficient star

13. Experimental background • Six participants (nodes) • Consisted of “rounds” during which subjects could make connection with another subject at a cost • convergence occurred if same configuration appeared in three consecutive rounds • Two “series” performed • series 1 used parameter set 1 • series 2 used parameter sets 2, 3, 4

14. Result 1 • Networks happen, with an appreciation of externalities is incorporated into agent decisions • in each experiment, a network instantaneously formed • given appropriate conditions, social or economic network will emerge

15. Result 2 • (i) Networks tend to converge to stationary configurations, (ii) Nash equilibrium is necessary condition for stationarity • (i) eight of 12 networks converged • (ii) all eight convergent networks are Nash equilibria

16. Result 3 • Each of focalness, efficiency, and strict Nash equilibrium can be rejected as being necessary for configuration to become stationary • one experiment converged to nonfocal, inefficient configuration in rounds 16-18 • one experiment converged to nonfocal wheel in rounds 17-19 • one experiment converged to weak Nash equilibrium configuration

17. Result 4 • Principle of Nash equilibrium does not prove a sufficient condition for configuration to be stationary • weak Nash configurations that did not prove stable were played in six experiments • strict Nash configurations not proving stable were played in 3 experiments

18. Result 5 • Nonconvergent networks do not exhibit increasing efficiency • dynamics of network evolution and change are not guided by a principle of efficiency seeking

19. Al fin