Local farsightedness in network formation

Abstract

We propose the concept of local‐ farsighted consistent network for analyzing network formation games where players only consider a limited number of feasible networks. A network is said to be local‐ farsightedly consistent if, for any network within the distance‐ neighborhood of , either is not defeated by , or defeats . We show that if the utility function is (componentwise) egalitarian or satisfies reversibility or excludes externalities across components, then local‐ farsightedness is more likely to be a good proxy for what would happen when players have full knowledge of all feasible networks.