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The Cambridge-INET Institute - continuing as the Janeway Institute

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Choi, S., Goyal, S. and Moisan, F.

Connectors and Influencers

WP Number: 1909

Abstract: We consider a setting in which individuals can purchase information at a cost and form costly links to access information purchased by others. The theory predicts that in every equilibrium of this game the network is a `star'. For small groups, there exists a unique purchase configuration  ΜΆ  a pure influencer outcome, in which the hub node purchases information while all others free ride. For large groups, there exists, in addition, a pure connector outcome in which the hub purchases no information and the peripheral players purchase information. We test these predictions on a new experimental platform with asynchronous activity in continuous time.

We start with a baseline setting where subjects only see their own payoffs. We find that subjects create a star network. In small groups, the hub purchases equilibrium level information, but in large groups the hub purchases excessive information and as a result earns low payoffs. To study the reasons for this excessive investment we propose a treatment in which subjects see everyone's payoffs. We find that in small groups the pure influencer out-come obtains but that in large groups the pure-connector outcome now becomes common, suggesting that information and group size interact in powerful ways to shape networks and payoffs.

JEL Codes: C92 D83 D85 Z13

Author links: Sanjeev Goyal  

PDF: wp1909.pdf

Open Access Link: 10.17863/CAM.38670

Keynes Fund Project(s):
Experiments on Financial Networks (JHLB)  
Experiments on 'Networked Markets' (JHLR)  

Theme: networks