Introduction

Overview

In this chapter, the objective is again to address network formation. In contrast to the first two chapters in this volume, here we assume that individuals are farsighted; that is, we assume that individuals are concerned with the eventual consequences of their immediate actions in forming connections and interacting with other individuals. To focus our discussion, we address the following question: Given the rules governing network formation (i.e., the rules governing what interactions are possible), and given the preferences of the individuals, what networks are likely to emerge and persist if individuals are farsighted? One possible approach to this question – an approach introduced by Page, Wooders, and Kamat (2001) and the approach taken in this chapter – is to think of each possible network representation of individual interactions as a node in a larger network in which the arcs represent coalitional preferences over networks and possible coalitional moves from one network to another. We call such a network of networks (or network formation network) a supernetwork. Given the structure of the supernetwork, we define a farsighted dominance relation on the networks composing the nodes of the supernetwork, and we consider three types of stable sets with respect to this supernetwork-determined farsighted dominance relation: farsightedly stable sets, farsightedly quasi-stable sets, and farsightedly consistent sets. Each of these three types of stable sets contains networks that can reasonably be thought of as likely to emerge and persist if individuals are farsighted.