Are individuals profit maximising in network formation? Some experimental evidence

We run a computerised experiment of network formation, where all connections are beneÖcial and only direct links are costly. The gametheoretic basis for the experiment is the model of Goyal and Joshi (2004) where players simultaneously submit link proposals and a connection is made only when both players involved agree. We provide an analysis both at the macro and the micro level. From a macro perspective, in accordance with the exsisting literature, we Önd that convergence to the stable network architecture is made problematic by the presence of multiple equilibria. At the level of the individual, we estimate the probability of a link through a probit model that includes both best-response and behavioural variables. We Önd strong evidence that both play a role in network formation.