of Principles Network Development and Evolution: An Experimental Study
A review of the paper by Callander and Plott by Kash 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.
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?
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?
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
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
Types of networks
wheel
counterclockwise wheel
Types of networks
an efficient nonfocal wheel
an efficient star
Sets of parameters
Authors used four sets of parameters for link connection cost and for the value of information
Model predictions
For each set of parameters, the following network types were predicted for principle
Comparisons
Types each of networks
wheel
counterclockwise wheel
Types of networks
an efficient nonfocal wheel
an efficient star
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
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
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
Result 3
Each of focalness, efficiency, and strict Nash equilibrium can be rejected as being necess...