An Experimental Study of Network Formation with Limited Observation

Date: 2014-07
By: Michael Caldara (Economic Science Institute, Chapman University)
Michael McBride (Department of Economics, University of California-Irvine)
Many social and economic networks emerge among actors that only partially observe the network when forming network ties. We ask: what types of network architectures form when actors have limited observation, and does limited observation lead to less efficient structures? We report numerous results from a laboratory experiment that varies both network observation and the cost of forming links. Overall, we find that limited network observation does not inevitably lead to highly inefficient networks but instead might actually inhibit inefficient positional jockeying among actors.
Keywords: Networks; Limited observation; Coordination
JEL: C92 D83 D85