Limited farsightedness in network formation

Abstract

Social relationships can be beneficial for various reasons. For example, people find jobs through their social contacts, and researchers connect with each other to cooperate on projects. Within these networks of relations, actors maintain different positions, which can influence their outcomes. Therefore, they arguably try to maneuver themselves into beneficial network positions. People nowadays use the term "networking" to describe such behavior. Linking with others does not only have an effect on an actor's own position and outcomes, but also affects the positions and therefore the outcomes of others in the network. It is often assumed that actors in such complex and dynamic network situations neglect subsequent decisions of other people: actors are myopic. In contrast, standard rationality models would assume actors to be perfectly rational and in that sense perfectly farsighted: actors are able to foresee all possible reactions of others. This assumption also seems unrealistic, as humans are unlikely to be capable to perform such complex cognitive tasks in a dynamic network. However, if actors are not only looking at their immediate gain, but anticipate the reactions of others at least to a limited extent, this already might have consequences for the formation of social networks. The research presented here examines systematically how individual behavior, in terms of actors' farsightedness, changes the formation of social networks. Computer simulations are used to predict model outcomes, and these predictions are tested experimentally. Furthermore, the experimental data on individual decisions are used to study heterogeneity of actors in terms of their ability to look ahead.