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Say you’re recently unemployed,
The Network Formation Game
and you meet a friend of a
by Lauren J. Bryant
on the local job market, so
friend over lunch. The friend’s friend seems to have good connections and information
you decide to link up with this person. You exchange information and leave lunch hopeful that your new association will lead to future benefits.
Indiana University
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his “not-what-you-know-but-who– you-know” networking is familiar to millions of job seekers. It’s also an example of a network model in the field of economics, in this case, labor markets. “The idea is, the network of social interactions we have is a key way that we get job information,” says Frank Page, professor of economics in the College of Arts and Sciences at Indiana University Bloomington. “The configuration of a network may create a lack of job information, too. Depending on the network a person is in, that person may not see a job because he doesn’t have the information. So networks may have a heck of a lot to do with the persistence of unemployment, income inequality, and poverty.” This quick analysis of “schmoozing,” or the lack of it, is central to Page’s area of expertise—understanding the characteristics of networks and how they affect economic interactions. To study networks, Page uses a game theory approach. In economics, game theory is a hypothetical representation of how players (or agents) make decisions (or choose strategies). Basically, the players,