Citation
Badev, Anton (2021). Nash Equilibria on (Un)Stable Networks.
Econometrica. vol. 89 (3) pp. 1179-1206
Abstract
In response to a change, individuals may choose to follow the responses of their friends or, alternatively, to change their friends. To model these decisions, consider a game where players choose their behaviors and friendships. In equilibrium, players internalize the need for consensus in forming friendships and choose their optimal strategies on subsets of k players—a form of bounded rationality. The k-player consensual dynamic delivers a probabilistic ranking of a game's equilibria, and via a varying k, facilitates estimation of such games. Applying the model to adolescents' smoking suggests that: (a) the response of the friendship network to changes in tobacco price amplifies the intended effect of price changes on smoking, (b) racial desegregation of high schools decreases the overall smoking prevalence, (c) peer effect complementarities are substantially stronger between smokers compared to between nonsmokers.
URL
https://doi.org/10.3982/ECTA12576Keyword(s)
Games on endogenous networks
Reference Type
Journal Article
Journal Title
Econometrica
Author(s)
Badev, Anton
Year Published
2021
Volume Number
89
Issue Number
3
Pages
1179-1206
DOI
10.3982/ECTA12576
Reference ID
5806
