| Jean-Jacques Herings (Maastricht University). |
| Stability of networks under limited farsightedness |
| (with Ana Mauleon and Vincent Vannetelbosch) |
| Abstract We study the stability of social and economic networks when players exhibit limited farsightedness. To do so, we introduce the concept of a level-K farsightedly stable set and show it to be non-empty. There is a unique level-1 farsightedly stable set, which coincides with the set of pairwise stable networks and closed cycles. For K sufficiently large, the level-K farsightedly stable set is closely related to the farsightedly stable set as introduced by Herings, Mauleon and Vannetelbosch (2009). We give characterizations and sufficient conditions for a set to be level-K farsightedly stable. We apply the concept to a number of examples, including a model of criminal networks, to analyze the influence of increasing foresight on the stability of networks. |