Can people form links to efficiently access information?

Abstract

We investigate how individuals form social connections to access information. In our link formation game of one-way flows, the myopic best response is to link to the node with the highest informational reach, which depends on indirect links. This strategy leads to the efficient circle network. We find that myopic best response predicts the links that subjects form. However, some subjects target high-degree nodes instead, neglecting indirect connections. This reduces network efficiency. We obtain similar findings when subjects link to transfer information to others. Using a minimal group treatment, we also find evidence of in-group homophily in link formation.