Clustering in network games

Abstract

In many circumstances, behavior and well-being of people depend on the actions taken by their social contacts. Previous research has mainly studied how individuals’ choices are shaped by their number of connections, while the incidence that other features of their social networks have on their behavior has been understudied. This paper analyzes the role of network clustering in Bayesian games of strategic substitutes and strategic complements played on networks, which reflect for instance public good provision and technology adoption, respectively. In our framework, players have incomplete information about the interaction network that includes the number of triads in the network — information labeled as perceived clustering throughout the paper. We show that equilibrium actions are non-decreasing (non-increasing) in perceived clustering under strategic substitutes (complements). Greater perceived clustering thus increases public good provision and reduces the adoption of complementary technologies in the Bayesian equilibria.