Behavioral Effects in Individual Decisions of Network Formation

Network formation constitutes an important part of many social and economic processes, but relatively little is known about how individuals make their linking decisions. This article provides an experimental investigation of behavioral effects in individual decisions of network formation. Our findings demonstrate that individuals systematically simplify more complex components of network payoff in their linking decisions. Specifically, they focus on only part of the normative payoff, namely on their own direct payoff and tend to ignore indirect payoff and payoff for others in the network. Additionally, individuals use descriptive behavioral traits of link choice alternatives to guide their choices. They are sensitive to whether an alternative involves link deletion or creation and whether it concerns an isolated or a central node. Furthermore, we find that complexity of one type can moderate individuals' dealing with a complex feature of another type. These behavioral effects have important implications for researchers and managers working in areas that involve network formation.