| Abstract: |
We examine the process of building social relationships in a non-cooperative
game where such link formation is costly and requires mutual consent. We
provide a noncooperative foundation for several link-based network stability
concepts that have been studied in the literature on network formation. In our
model players form myopic beliefs about the feasibility of building direct
relationships with their acquaintances. These beliefs represent how each
neighbor of a player is expected to respond to the initiation of a link by
that player. We introduce a stability concept called “monadic stability” where
agents play a best response to their formed myopic beliefs such that these
beliefs are self-confirming. The resulting equilibrium networks form a class
of networks that are shown to have some very appealing properties. |