This paper studies optimal targeting policies, consisting of eliminating (preserving) a set of agents in a network and aimed at minimizing (maximizing) aggregate effort levels. Different from the existing literature, we allow the equilibrium network to adapt after a network intervention and consider targeting of multiple agents. A simple and tractable adjustment process is introduced. We find that allowing the network to adapt may overturn optimal targeting results for a fixed network.
This paper provides a game-theoretic model of network formation with a continuous effort choice. Efforts are strategic complements for direct neighbors in the network and display global substitution/congestion effects. We show that if the parameter governing local strategic complements is larger than the one governing global strategic substitutes, then all pairwise Nash equilibrium networks are nested split graphs. We also consider the problem of a planner, who can choose effort levels and place links according to a network cost function. Again all socially optimal configurations are such that the network is a nested split graph. However, the socially optimal network may be different from equilibrium networks and efficient effort levels do not coincide with Nash equilibrium effort levels. In the presence of strategic substitutes, Nash equilibrium effort levels may be too high or too low relative to efficient effort levels. The relevant applications are crime networks and R&D collaborations among firms, but also interbank lending and trade.
People go to casinos or racetracks not only because they hope to win money but because they enjoy gambling for its own sake. The fact that people experience a thrill when they miss winning or avoid losing only by a whisker is sufficiently well established that slot machines are rigged to increase the probability of such near misses so as to keep punters playing. But orthodox Bayesian decision theory endorses the principle that a miss is as good as a mile. So why did evolution wire us up to delight in the excitement of a near miss? This paper offers a possible explanation.
Structural Balance: A Laboratory Experiment (with Zeynep Gurguc)