Privacy, trust and social network formation

Date: 2015
By: Gaudeul, Alexia
Giannetti, Caterina
We study in the laboratory the impact of private information revelation on the selection of partners when forming individual networks. Our experiment combines a “network game" and a “public-good game". In the network game, individuals decide with whom to form a link with, while in the public-good game they decide whether or not to contribute. The variations in our treatments allow us to identify the effect of revealing one´s name on the probability of link formation. Our main result suggests that privacy mechanisms affect partner selection and the consequent structure of the network: when individuals reveal their real name, their individual networks are smaller but their profits are higher. This indicates that the privacy costs of revealing personal information are compensated by more productive links.
Keywords: privacy,social networks,public goods,trust
JEL: D12 D85

Sequential selling and information dissemination in the presence of network effects

Date: 2014-10
By: Junjie Zhou (School of International Business Administration, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, 200433, China)
Ying-Ju Chen (School of Business and Management & School of Engineering, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong)
In this paper, we examine how a seller sells a product/service with a positive consumption externality, and customers are uncertain about the product’s/service’s value. Because early adopters learn this value, we consider the customers’ intrinsic signaling incentives and positive feedback effects. Anticipating this, the seller commits to provide price discounts to the followers, and charges the leader a high price. Thus, the profit-maximizing pricing features the cream skimming strategy. We also show that the lack of seller’s commitment is detrimental to the social welfare; nonetheless, the sequential selling still boosts up the seller’s profit. Embedding a physical network with arbitrary payoff externality among customers, we investigate the optimal targeting strategy in the presence of information asymmetry. We provide precise indices for this leader selection problem. For undirected graphs, we should simply choose the player with the highest degree, irrespective of the seller’s commitment power. Going beyond this family of networks, in general the seller’s commitment power affects the optimal targeting strategy.
Keywords: revenue management; signaling; information transmission; social networks;
JEL: D82 L14 L15

Deception in Networks: A Laboratory Study

Date: 2014-04
By: Rong Rong (Department of Economics, Weber State University)
Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
Communication between departments within a firm may include deception. Theory suggests that telling lies in these environments may be strategically optimal if there exists a small difference in monetary incentives (Crawford and Sobel, 1982; Galeotti et al, 2012). We design a laboratory experiment to investigate whether agents with different monetary incentives in a network environment behave according to theoretical predictions. We found that players’ choices are consistent with the theory. That is, most communication within an incentive group is truthful and deception often occurs between subjects from different groups. These results have important implications for intra-organizational conflict management, demonstrating that in order to minimize deceptive communication between departments the firm may need to reduce incentive differences between these groups. Length: 19
Keywords: social networks, deception, strategic information transmission, experiments
JEL: D85 D02 C92

Boundedly Rational Opinion Dynamics in Directed Social Networks: Theory and Experimental Evidence

Date: 2014-01
By: Pietro Battiston
Luca Stanca
This paper investigates opinion dynamics and social influence in directed communication networks. We study the properties of a generalized boundedly rational model of opinion formation in which individuals aggregate the information they receive by using weights that are a function of their neighbors’ indegree. We then present an experiment designed to test the predictions of the model. We find that both Bayesian updating and boundedly rational updating à la DeMarzo et al. (2003) are rejected by the data. Consistent with our theoretical predictions, the social influence of an agent is positively and significantly affected by the number of individuals she listens to. When forming their opinions, agents do take into account the structure of the communication network, although in a sub-optimal way.
Keywords: Social Networks, Learning, Social In uence, Bounded Rationality
JEL: D85 D83 A14 L14 Z13

Equilibrium Selection in Experimental Games on Networks

Gary Charness, Francesco Feri, Miguel A. Meléndez-Jiménez, and Matthias Sutte (2012) “Equilibrium Selection in Experimental Games on Networks." working paper, Department of Economics, UC Santa Barbara. [pdf] [ideas]



Abstract. We study behavior and equilibrium selection in experimental network games. We vary two  important  factors:  (a) actions are either  strategic  substitutes or  strategic complements, and (b)  subjects  have  either  complete  or  incomplete  information  about  the  structure  of  a  random network.  Play  conforms  strongly  to  the  theoretical  predictions,  providing  an  impressive behavioral  confirmation  of  the  Galeotti,  Goyal,  Jackson,  Vega-Redondo,  and  Yariv  (2010) model. The degree of  equilibrium play  is  striking,  even with  incomplete  information. We  find that  under  complete  information,  subjects  typically  play  the  stochastically-stable  (inefficient) equilibrium when the game involves strategic substitutes, but play the efficient one with strategic complements.   Our  results  suggest  that  equilibrium multiplicity may  not  be  a major  concern Subjects’ actions and realized outcomes under  incomplete  information depend strongly on both the degree and the connectivity. When there are multiple equilibria, subjects begin by playing the efficient equilibrium, but eventually converge to the inefficient one.

Networks in Economics

Date: 2012-06
By: Zenou, Yves
We provide an overview on networks in economics. We first look at the theoretical aspects of network economics using a game-theoretical approach. We derive some results on games on networks and network formation. We also study what happens when agents choose both links and actions. We then examine how these models can be used to address some applied and empirical-relevant questions by mainly focusing on labor-market networks and crime networks. We provide some empirical evidence on these two types of networks and address some policy implications of the models.
Keywords: criminal networks; games on networks; labor networks; network formation; Social networks
JEL: A14

Identifying Formal and Informal Influence in Technology Adoption with Network Externalities

Catherine Tucker (2008) “Identifying Formal and Informal Influence in Technology Adoption with Network Externalities." MANAGEMENT SCIENCE, Vol. 54, No. 12, December 2008, pp. 2024-2038
DOI: 10.1287/mnsc.1080.0897.

Notes by Yi-Nung


Original Abstract

Firms introducing network technologies (whose benefits depend on who installs the technology) need to understand which user characteristics confer the greatest network benefits on other potential adopters. To examine which adopter characteristics matter, I use the introduction of a video-messaging technology in an investment bank. I use data on its 2,118 employees, their adoption decisions, and their 2.4 million subsequent calls.The video-messaging technology can also be used to watch TV.Exogenous shocks to the benefits of watching TV are used to identify the causal (network) externality of one individual user’s adoption on others’ adoption decisions. I allow this network externality to vary in size with a variety of measures of informal and formal influence. I find that adoption by either managers or workers in “boundary spanner" positions has a large impact on the adoption decisions of employees who wish to communicate with them. Adoption by ordinary workers has a negligible impact.This suggests that firms should target those who derive their informal influence from occupying key boundary-spanning positions in communication networks, in addition to those with sources of formal influence, when launching a new network technology.

Cited by:

R. Iyengar, C. Van den Bulte, and T. W. Valente “Opinion Leadership and Social Contagion in New Product Diffusion." Marketing Science, March 1, 2011; 30(2): 195 – 212. [Abstract] [PDF]

S. Aral, L. Muchnik, and A. Sundararajan
Distinguishing influence-based contagion from homophily-driven diffusion in dynamic networks PNAS, December 22, 2009; 106(51): 21544 – 21549.
[Abstract] [Full Text] [PDF]