Dynamic Network Formation with Ordered Partitioning and Incomplete Information

We introduce a dynamic network formation model with incomplete information and asymmetric players who are partitioned into ordered groups. At each stage, a pair of players is randomly selected to update the link connecting them. The feature of the model is that the cost of a link depends on the distance between the labels of the groups players belong to. As a result, information about the other player’s label is significant in the decision to form a link. Assuming incomplete information, players initially do not know each other’s labels, but learn them upon being connected. Comparing the topologies of stable networks for cases of complete and incomplete information indicates that the presence of the latter can have deep implications. Furthermore, our simulation experiments are focused on three issues: the stabilization time, the heterogeneity index, and the impact of the group size gap.