Myopic and farsighted stability in network formation games: an experimental study

We test the performance of myopic and farsighted stability concepts in a network formation experiment with a stream of payoffs and relatively unstructured link formation process. A subtle treatment variation demonstrates clearly the power of myopic stability concepts in precisely identifying the set of the most stable networks. However, we also find support for the predictions of farsighted concepts of stability, especially those that assume players' pessimism about the eventual outcome of a deviation. This is the first study to demonstrate that there exist environments where farsighted stability concepts identify empirically stable networks that are not identified by myopic concepts. Thus, myopic stability concepts are not necessarily sufficient to predict all stable outcomes in empirical applications.