Constrained interactions and social coordination

Abstract

We consider a co-evolutionary model of social coordination and network formation where agents may decide on an action in a 2×2-coordination game and on whom to establish costly links to. We find that if agents may only support a limited number of links payoff dominant conventions will emerge in the long run, contrasting the case of unconstrained interactions where risk dominant conventions arise for a wide range of parameters. Under constrained iterations, already a small number of agents choosing the payoff dominant action enables agents – by linking up to those agents and choosing the payoff dominant action – to secure themselves the highest possible payoff. We extend our model by discussing constrained interactions in the context of general m×m games, convex payoff functions, heterogeneous constraints, and frictions in link formation.