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<article xmlns:xlink="http://www.w3.org/1999/xlink">
  <front>
    <journal-meta />
    <article-meta>
      <title-group>
        <article-title>Hedonic Games with Social Context</article-title>
      </title-group>
      <contrib-group>
        <contrib contrib-type="author">
          <string-name>Gianpiero Monaco</string-name>
          <email>gianpiero.monaco@univaq.it</email>
          <xref ref-type="aff" rid="aff2">2</xref>
        </contrib>
        <contrib contrib-type="author">
          <string-name>Luca Moscardelli</string-name>
          <email>luca.moscardelli@unich.it</email>
          <xref ref-type="aff" rid="aff1">1</xref>
        </contrib>
        <contrib contrib-type="author">
          <string-name>Yllka Velaj</string-name>
          <email>yllka.velaj@cwi.nl</email>
          <xref ref-type="aff" rid="aff0">0</xref>
        </contrib>
        <aff id="aff0">
          <label>0</label>
          <institution>CWI</institution>
          ,
          <addr-line>Amsterdam 1098 XG</addr-line>
          ,
          <country country="NL">Netherlands</country>
        </aff>
        <aff id="aff1">
          <label>1</label>
          <institution>University of Chieti-Pescara</institution>
          ,
          <addr-line>Pescara 65127</addr-line>
          ,
          <country country="IT">Italy</country>
        </aff>
        <aff id="aff2">
          <label>2</label>
          <institution>University of L'Aquila</institution>
          ,
          <addr-line>L'Aquila 67100</addr-line>
          ,
          <country country="IT">Italy</country>
        </aff>
      </contrib-group>
      <abstract>
        <p>Hedonic games are coalition formation games in which coalitions are created as a result of the strategic interaction of independent players. To this day, the literature on non-cooperative hedonic games has considered totally sel sh players; our aim is that of de ning and studying a new model in which, given a social graph, players also care about the happiness of their friends: we call this class of games social context hedonic games (SCHGs). We consider Nash equilibria of SCHGs, and study their existence, convergence and performance with respect to the classical notions of price of anarchy and price of stability. In particular, we provide an exact potential function for SCHGs implying the existence and convergence to Nash equilibria, and we prove tight or asymptotically tight bounds on the price of anarchy and the price of stability of SCHGs.</p>
      </abstract>
      <kwd-group>
        <kwd>Coalition Formation</kwd>
        <kwd>Hedonic Games</kwd>
        <kwd>Nash Equilibrium</kwd>
        <kwd>Price of Anarchy</kwd>
        <kwd>Price of Stability</kwd>
        <kwd>Social Context</kwd>
      </kwd-group>
    </article-meta>
  </front>
  <body>
    <sec id="sec-1">
      <title>-</title>
      <p>
        An important issue in computer science is that of investigating the dynamics
that regulates clustering and coalition formation. Hedonic games, introduced by
Dreze and Greenberg [
        <xref ref-type="bibr" rid="ref15">15</xref>
        ], represent a framework for studying the formal aspects
of the formation of player coalitions. In these games, players have preferences
over the set of all possible player coalitions, and the utility of a player depends
on the composition of the coalition she belongs to.
      </p>
      <p>Hedonic games are of great interest because they model natural behavioral
dynamics in social environments: in economic, social and political situation,
in fact, individuals carry out activities in groups rather than by themselves.
Politicians, for example, may want to be in a party that maximizes like-minded
members or, more in general, people may want to be with people of the same
ethnic or social group.</p>
      <p>While the standard model of hedonic games assumes that players are totally
sel sh, in this paper we are interested in analyzing the case in which players
take into account also the happiness of their friends. We call these games Social
Context Hedonic Games (SCHGs); we believe that they provide a more realistic
model for hedonic games, because they capture the fact that the behavior of
players also depends on the happiness of their friends. To this aim, we consider
2
1
5</p>
      <p>5
4
3
2
1
4
3
(i; j) vi;j
(1,3) 1
(2,5) 3
(1,5) 2
(3,4) 1
an underlying social network represented by a graph, whose nodes are players
and in which an edge connecting two players expresses friendship between them.
Arguably, as a rst step in the study of SCHGs, it is more natural to consider
symmetric friendship relations and therefore we focus on undirected graphs.</p>
      <p>In SCHGs, valuations are additive and each player has a valuation v for any
other player, but di erently from the classical hedonic games, the utility of a
coalition to a particular player is given not only by the sum of the valuations
she assigns to the members of her coalition, but also depends on the sum of the
valuations her friends assign to the members of their own coalitions (the latter
contribution is multiplied by a given parameter 2 [0; 1]). In particular, for
= 0 we model classical hedonic games in the totally sel sh setting and when
= 1 we can model a fully altruistic setting. In Figure 1, for example, we can
see that the utility of player 5 is equal to v1;5 + v2;5 + (v1;5 + v2;5 + v3;4) =
2 + 3 + (2 + 3 + 1), where 2 + 3 is the sum of valuations of the players in her
coalition and (2 + 3 + 1) is the sum of valuations her friends 1, 2 and 3 assign
to the members of their own coalitions, multiplied by .</p>
      <p>Our aim is to study the existence and performance of natural stable outcomes
for SCHGs. We will focus on Nash stable outcomes, i.e., outcomes in which no
player can improve her utility by unilaterally changing her own coalition. In
particular, we evaluate the performance of Nash outcomes for SCHGs by means
of the widely used notions of price of anarchy and price of stability, which are
de ned as the ratio between the social optimal value and the social value of the
worst (resp. best) stable outcome.
By providing an exact potential function for the SCHGs, we show that these
games always posses a pure Nash equilibrium and also that the convergence to
such stable outcomes is guaranteed. We consider two social welfare functions.
The rst social function, SW, is given by the summation, for each player, of
the values she assigns to the members of her coalition, while the second social
function, denoted by SW, is the summation of the players' utilities (taking into
account, for any player, also the contribution due to the valuations of her friends
multiplied by ). We evaluate, for both of them, the performance of the Nash
outcomes by means of the notions of price of anarchy and price of stability (PoA
and PoA denote the price of anarchy with respect to SW and SW, respectively;
analogously PoS and PoS denote the price of stability with respect to SW and
SW, respectively).</p>
      <p>In presence of negative valuations, both PoS and PoS (and therefore also PoA
and PoA) can be unbounded. Furthermore, in some cases we are able to provide
instances in which the social value of any equilibrium C is negative while the
optimal solution lead to a positive outcome.</p>
      <p>We subsequently turn our attention to the case of non-negative valuations
and we prove that the price of anarchy is (n), while the price of stability is 1.
1.2</p>
      <p>
        Related Work
Social context games are introduced in [
        <xref ref-type="bibr" rid="ref2">2</xref>
        ]. These games are de ned by an
underlying game in strategic form, and a social context consisting of an
undirected graph and an aggregation function. The authors consider resource
selection games as the underlying game and they study the existence of pure strategy
Nash equilibrium. Building on this model, Bilo et al. [
        <xref ref-type="bibr" rid="ref8">8</xref>
        ] investigate social context
games in which the underlying games are linear congestion games and Shapley
cost sharing games, while the aggregation functions are min, max and sum.
Moreover, Anagnostopoulos et al. [
        <xref ref-type="bibr" rid="ref1">1</xref>
        ] study the e ects of the altruistic behaviour
of players showing that the price of anarchy may increase as the players become
more altruistic. They show that this increase is modest for congestion games and
min-sum scheduling games, whereas it might be drastic for generalized second
price auctions. The interests on altruistic players have been also modelled and
studied by Hoefer and Skopalik [
        <xref ref-type="bibr" rid="ref19">19</xref>
        ]: they focus on the existence and complexity
of pure Nash equilibria with altruistic agents in atomic congestion games. Chen
et al. [
        <xref ref-type="bibr" rid="ref13">13</xref>
        ] study the ine ciency of equilibria for several classes of games such
as cost-sharing games, utility games, and linear congestion games. Salehi-Abari
and Boutilier [
        <xref ref-type="bibr" rid="ref25">25</xref>
        ] study social choice with empathetic preferences and their local
empathetic model is related to the model presented in [
        <xref ref-type="bibr" rid="ref21">21</xref>
        ]. Finally, Br^anzei and
Larson [
        <xref ref-type="bibr" rid="ref11">11</xref>
        ] study social distance games. In these games a players opinion on
her friends (players of distance one) has the highest weight while her opinion on
players farther away counts less.
      </p>
      <p>
        Several papers are devoted to the study of hedonic games. They are
introduced by Dreze and Greenberg [
        <xref ref-type="bibr" rid="ref15">15</xref>
        ], who analyze hedonic games under a
cooperative perspective. Properties guaranteeing the existence of core allocations for
games with additively separable utility have been studied by Banerjee, Konishi
and Sonmez [
        <xref ref-type="bibr" rid="ref7">7</xref>
        ], while Bogomolnaia and Jackson [
        <xref ref-type="bibr" rid="ref10">10</xref>
        ] deal with several forms of
stable outcomes like the core, Nash and individual stability. Ballester [
        <xref ref-type="bibr" rid="ref4">4</xref>
        ]
considers computational complexity issues related to hedonic games, and shows that
the core and the Nash stable outcomes have corresponding NP-complete decision
problems for a variety of situations, while Aziz et al. [
        <xref ref-type="bibr" rid="ref3">3</xref>
        ] study the computational
complexity of stable coalitions in additively separable hedonic games. Moreover,
Olsen [
        <xref ref-type="bibr" rid="ref22">22</xref>
        ] proves that the problem of deciding whether a Nash stable coalitions
exists in an additively separable hedonic game is NP-complete, as well as the
one of deciding whether a non-trivial Nash stable coalitions exists in an
additively separable hedonic game with non-negative and symmetric preferences
(i.e., unweighted undirected graphs). Feldman et al. [
        <xref ref-type="bibr" rid="ref16">16</xref>
        ] investigate some
interesting subclasses of hedonic games from a non-cooperative point of view, by
characterizing Nash equilibria and providing upper and lower bounds on both
the price of stability and the price of anarchy. In their model the agents lie in
a metric space with a distance function modeling their distance or "similarity".
Peters [
        <xref ref-type="bibr" rid="ref23">23</xref>
        ] considers \graphical" hedonic games where agents form the vertices
of an undirected graph, and each agent's utility function only depends on the
actions taken by her neighbors (with general value functions). Moreover, hedonic
games have also been considered by Charikar et al. [
        <xref ref-type="bibr" rid="ref12">12</xref>
        ] and by Demaine et al.
[
        <xref ref-type="bibr" rid="ref14">14</xref>
        ] from a classical optimization point of view (i.e, without requiring stability
for the solutions) and by Flammini et al. in an online setting [
        <xref ref-type="bibr" rid="ref17">17</xref>
        ]. Peters et al.
[
        <xref ref-type="bibr" rid="ref24">24</xref>
        ] consider several classes of hedonic games and identify simple conditions on
expressivity that are su cient for the problem of checking whether a given game
admits a stable outcome to be computationally hard. From a di erent
perspective, strategyproof mechanisms for additively separable hedonic and fractional
hedonic games have been proposed in [
        <xref ref-type="bibr" rid="ref18">18</xref>
        ], while stable outcomes for these games
and for modi ed fractional hedonic games are presented in [
        <xref ref-type="bibr" rid="ref9">9</xref>
        ] and [
        <xref ref-type="bibr" rid="ref20">20</xref>
        ]. Finally,
hedonic games are being widely investigated also under di erent utility de
nitions. For instance, in [
        <xref ref-type="bibr" rid="ref5 ref6">5, 6</xref>
        ], coalition formation games in which agent utilities
are proportional to their harmonic centralities in the respective coalitions are
considered.
      </p>
      <p>
        To the best of our knowledge, few papers deal with the notion of altruism
in hedonic games. Nguyen et al. [
        <xref ref-type="bibr" rid="ref21">21</xref>
        ] de ne altruistic hedonic games where the
satisfaction of players' friends is taken into account according to three degrees of
altruism, from being sel sh rst, over aggregating opinions of a player and her
friends equally, to altruistically letting ones friends decide rst. They study both
the axiomatic properties of these games and the computational complexity of
problems related to common stability concepts. In [
        <xref ref-type="bibr" rid="ref26">26</xref>
        ], Umar and Mesbah model
the problem of joint coalition formation and bandwidth allocation in ad hoc radio
networks made of sel sh/altruistic nodes as a hedonic coalition formation game
with non-transferable utility. The authors study the computational complexity
and convergence properties of the proposed hedonic algorithm under sel sh and
altruistic preferences, and present means to guarantee Nash-stability.
      </p>
      <p>The paper is organized as follows. In Section 2 we formally de ne the
hedonic games with social context. The technical contributions of the paper are then
presented in Sections 3, 4 and 5 which address the existence of Nash outcomes,
the results on the price of anarchy and those on the price of stability,
respectively. Finally, in Section 6 we list some interesting open problems. Due to space
limitations, some proofs are omitted.
2</p>
    </sec>
    <sec id="sec-2">
      <title>Model</title>
      <p>For an integer k &gt; 0, denote with [k] the set f1; : : : ; kg.</p>
      <p>We model a Social Context Hedonic Game by means of a valuation function
v, an undirected graph G = (N; E) and a given parameter 2 [0; 1]. We denote
with n = jN j the number of nodes of G and with E the set of edges between the
nodes, that represent the friendship relation. v : N N ! R is the symmetric
valuation function. For the sake of convenience, we adopt the notation (i; j) and
vi;j to denote the pair fi; jg 2 N N and its valuation v(fi; jg), respectively.</p>
      <p>Given a symmetric valuation function v, an undirected graph G = (N; E) and
a value for , the Social Context Hedonic Game induced by G, v and , denoted
as G(G; v; ), is the game in which each node i 2 N is associated with a player.
We assume that players are numbered from 1 to n and, for every i 2 [n], each
player chooses to join a certain coalition among n candidate ones: the strategy
of player i is an integer j 2 [n], meaning that player i is selecting candidate
coalition Cj . A coalition structure (also called outcome) is a partition of the set
of players into n coalitions C = fC1; C2; : : : ; Cng such that Cj N for each
j 2 [n], Sj2[n] Cj = N and Ci \ Cj = ; for any i; j 2 [n] with i 6= j. Notice
that, since the number of candidate coalitions is equal to the number of players
(nodes), some coalition may be empty. If i 2 Cj , we say that player i is a member
of the coalition Cj . We denote by C(i) the coalition in C of which player i is a
member. In an outcome C, the utility of player i is de ned as
ui(C) = ui(C) +</p>
      <p>X
where, for every i 2 [n], ui(C) = Pj2C(i) vi;j .</p>
      <p>Each player chooses the coalition she belongs to with the aim of maximizing
her utility. We denote by (C; i; j), the new coalition structure obtained from C
by moving player i from C(i) to Cj ; formally, (C; i; j) = C n fC(i); Cj g [ fC(i) n
fig; Cj [figg. A player deviates if she changes the coalition she belongs to. Given
an outcome C, an improving move (or simply a move) for player i is a deviation
to any coalition Cj that strictly increases her utility, i.e., ui((C; i; j)) &gt; ui(C).
Moreover, player i performs a best-response in coalition structure C by choosing
a coalition providing her the highest possible utility (notice that a best-response
is also a move when there exists a coalition Cj such that ui((C; i; j)) &gt; ui(C).
A player is stable if she cannot perform a move. An outcome is (pure) Nash
stable (or a Nash equilibrium) if every player is stable. An improving dynamics,
or simply a dynamics, is a sequence of moves, while a best-response dynamics
is a sequence of best-responses. A game has the nite improvement path
property if it does not admit an improvement dynamics of in nite length. Clearly,
a game possessing the nite improvement path property always admits a Nash
stable outcome. We denote with N(G(G; v; )) the set of Nash stable outcomes
of G(G; v; ).</p>
      <p>The social welfare of a coalition structure C is the summation of the players'
utilities, i.e., SW(C) = Pi2N ui(C).</p>
      <p>We de ne also a second social welfare function SW(C) = Pi2N ui(C) which
is given by the summation, for each player, of the valuations she assigns to the
members of her coalition (without considering her friends' utilities).</p>
      <p>Given a game G(G; v; ), an optimum coalition structure C (G(G; v; ))
(respectively C (G(G; v; ))) is one that maximizes the social welfare SW
(respectively SW) of G(G; v; ). The price of anarchy of a social context
hedonic game G(G; v; ) is de ned as the worst-case ratio between the social
welfare of a social optimum outcome and that of a Nash equilibrium. Formally,
for any k = 1; : : : ; n, PoA(G(G; v; )) = maxC2N(G(G;v; )) SW(C S(WG((GC);v; ))) and
PoA(G(G; v; )) = maxC2N(G(G;v; )) SW(C S(WG((GC);v; ))) . Analogously, the price of
stability of G(G; v; ) is de ned as the best-case ratio between the social
welfare of a social optimum outcome and that of a Nash equilibrium. Formally,
for any k = 1; : : : ; n, PoS(G(G; v; )) = minC2N(G(G;v; )) SW(C S(WG((GC);v; ))) and
PoS(G(G; v; )) = minC2N(G(G;v; )) SW(C S(WG((GC);v; ))) .
3</p>
    </sec>
    <sec id="sec-3">
      <title>Nash Stable Outcomes</title>
      <p>In this section we consider Nash stable outcomes. We show that a stable outcome
is guaranteed to exist and also that the nite improvement path property holds
for SCHGs, because these games admit the potential function
(C) = 12 X u^i(C);
i2N
with u^i(C) = Pj2C(i) vi0;j, where, for each pair of players (i; j), we de ne vi0;j =
vi;j (1 + ) if (i; j) 2 E and vi0;j = vi;j if (i; j) 62 E.</p>
      <p>Thus, we can rewrite the potential function (C) as
(C) = X vi;j +</p>
      <p>Proof. Given two stable outcomes C and C0 where C0 is obtained form C after a
player i performs a move, we prove that the following holds:
(C0)
(C) = ui(C0)
ui(C):
(1)
For the left hand side of Equation (1), by applying the de nition of , we obtain
that:
(C0)</p>
      <p>1
(C) = 2</p>
      <p>X u^i(C0)
i2N
0
=
j2C0(i)
vi0;j</p>
      <p>!
X u^i(C) = 1 X (u^i(C0)</p>
      <p>2
i2N i2N</p>
      <p>u^i(C))
X</p>
      <p>X</p>
      <p>vi;j:
j2C(i);(i;j)2E</p>
      <sec id="sec-3-1">
        <title>In the right hand side we obtain that:</title>
        <p>(i;j)2E
ui(C) +</p>
        <p>X (uj(C0)
In this section we evaluate the performance of Nash stable outcomes with respect
to the notion of price of anarchy.</p>
        <p>We rst show that the price of anarchy is unbounded for general valuations.
The following result holds for both the social welfare functions SW and SW, even
when the social graph has no edges.</p>
        <p>Theorem 2. For any 2 [0; 1], there exists a function v (also admitting
negative valuations), such that PoA(G(G; v; )) and PoA(G(G; v; )) are unbounded,
where G = (N; ;).</p>
        <p>For more involved social graphs, we are also able to show a stronger result,
holding even for the case of the price of stability (analyzed in Section 5): by
Theorem 6, there exists a SCHG in which every Nash equilibrium C is such that
SW(C) is negative, while SW(C ) is positive. We now prove a similar result for
the social welfare function SW.</p>
        <p>Theorem 3. For any 2 (0; 1], there exists a graph G and a function v (also
admitting negative valuations) inducing G(G; v; ), such that SW(C ) &gt; 0 while
SW(C) &lt; 0 for a Nash stable outcome C of G(G; v; ).</p>
        <p>Given these negative results, in what follows we focus on the case in which
the valuation function does not assume negative values, i.e., vi;j 0 for any
i; j 2 [n] with i 6= j.</p>
        <p>In order to prove the upper bounds to PoA and PoA, we need some
additional notation and de nitions. Given any outcome C, let i C
( ) be the sum
of the valuations of player i toward her friends belonging to C(i), i.e i C
( ) =
Pj2C(i):(i;j)2E vi;j, and, analogously, let i(C) = Pj2C(i):(i;j)62E vi;j be the sum
of the valuations of player i toward players belonging to C(i) and not being
her friends. Finally, we denote by imax the maximum valuation of player i, i.e.
imax = maxj2N vi;j.</p>
        <p>The following theorems provide asymptotically matching upper and lower
bounds to PoA and PoA.</p>
        <p>Theorem 4. For any 2 [0; 1], any graph G and any function v not admitting
negative valuations, PoA(G(G; v; )) (n 1)(1 + ) and PoA(G(G; v; ))
(n 1)(1 + ).</p>
        <p>Proof. Given a Nash stable outcome C, for every player i 2 [n] it holds that
i(C) + i(C) +
i(C)
imax:
In fact, recall that ui(C) = ui(C) + P(i;j)2E uj(C), where, for every i 2 [n],
ui(C) = Pj2C(i) vi;j. By the de nitions of i(C) and i(C), ui(C) = i(C) + i(C).
Moreover, let i(C) = P(i;j)2E uj(C) i(C): it follows that ui(C) = i(C) +
i(C) + ( i(C) + i(C)). Notice that if player i changes her strategy by joining
the coalition containing player j such that vi;j = imax, inducing in this way
a new coalition structure C0, we obtain ui(C0) imax + i(C), because the
contributions i C</p>
        <p>( ) of the friends of i not connected to player i in C(i) remain
unchanged in C0. Therefore, if imax + i(C) &gt; i(C) + i(C) + ( i(C) + i(C))
player i would increase her utility by changing her strategy: a contradiction to
the fact that C is Nash stable.</p>
        <p>Moreover, it trivially holds that in all coalition structures, including the
optimal outcomes C and C , ui is at most (n 1) imax. Thus, ui(C ) (n 1) imax
and ui(C ) (n 1) imax.</p>
        <p>Therefore,
andAunia(Clog)ousl(y1im,+afox)r, tbhye rseoccaialllinwgeltfhaeredfeunncittiioonn SoWfu,is,iwnceeoubit(aCin) tha(tn 1) imax</p>
        <p>Theorem 5. For every even positive integer n and every 2 [0; 1], there exist a
graph G with n vertices and a valuation function v such that PoA(G(G; v; ))
(1 + ) n2 and PoA(G(G; v; )) (1 + ) n2 .</p>
        <p>tu
.
.
.</p>
        <p>n</p>
        <p>Proof. Consider the bipartite graph G = (A [ B; E) with n vertices depicted in
Figure 2 (note that A = f1; 3; : : : ; n 1g and B = f2; 4; : : : ; ng), and let v the
valuation function in which
{ vi;j = vj;i = 1+1 for every (i; j) 2 E;
{ vi;j = vj;i = 1 for all pairs (i; j) 62 E such that i 2 A and j 2 B;
{ vi;j = 0 for all remaining pairs.</p>
        <p>On the one hand, as it can be easily checked, the grand coalition Co is such
that, for every i 2 [n], ui(Co) = n2 1 + 1+1 . Therefore, the optimal outcome
C is such that SW(C ) n n2 1 + 1+1 and the optimal outcome C is such
that SW(C ) n(1 + ) n2 1 + 1+1 .</p>
        <p>On the other hand, the coalition structure C in which there are n2 non-empty
coalitions fi; i + 1g for i = 1; 3; : : : ; n 1 is a Nash stable outcome; in fact, for
every i 2 A, ui(C) = 1+1 and ui(C) = 1+1 + 1+1 = 1, while a deviation of
player i to another non-empty candidate coalition would induce a new coalition
structure C0 such that ui(C0) = 1 + 0 = 1, because for player i + 1 connected
in G to player i it holds ui+1(C0) = 0. Moreover, a deviation of player i to an
empty candidate coalition would induce a new coalition structure C00 such that
ui(C00) = 0, again because for player i + 1 connected in G to player i it holds
ui+1(C00) = 0. A completely symmetric argument holds for every player i 2 B.</p>
        <p>It follows that</p>
        <p>SW(C )
SW(C)
n n2</p>
      </sec>
    </sec>
    <sec id="sec-4">
      <title>Price of Stability</title>
      <p>In this section we present our results on the price of stability. First of all, notice
that, if all valuations are non-negative, with respect to both social welfare
functions SW and SW, the grand coalition is at the same time an optimal solution
and a Nash stable outcome, thus implying that PoS = PoS = 1.</p>
      <p>Therefore, in the following we deal with the case of general valuations, i.e.,
we allow the valuation function to assume negative values. We rst show that,
for the social welfare function SW, there exists a SCHG in which every Nash
equilibrium C is such that SW(C) is negative, while SW(C ) is positive.
Theorem 6. For any 2 (0; 1], there exists a graph G and a function v
(admitting also negative valuations) inducing G(G; v; ), such that SW(C ) &gt; 0 while
SW(C) &lt; 0 for every Nash stable outcome C of G(G; v; ).</p>
      <p>Proof. Let us consider the graph G depicted in Figure 3 and the valuation
function v whose non-null values are listed in Figure 3, and in which &lt; is an
arbitrary positive parameter.</p>
      <p>Now we want to show that in every Nash stable outcome C players 1, 2 and
3 belong to the same coalition.</p>
      <p>First of all, notice that, for any i 4, vi;j = 0 for any j 2 [n]; it follows
that it is possible to discard players 4; : : : ; n in the following discussion. The
outcome in which players 1, 2 and 3 belong to three di erent coalitions is not
Nash stable because, for instance, player 1 would increase her utility from 0 to
1 + by joining the coalition of player 2. The outcome in which players 1 and 2
are in a coalition and player 3 in another one is not Nash stable because player
3 would increase her utility from to 2 by joining the coalition of players 1
and 2 (notice that a symmetric argument holds for the outcome in which players
2 and 3 are in a coalition and player 1 in another one). Finally, the outcome in
which players 1 and 3 are in a coalition and player 2 in another one is not Nash
stable because, for instance, player 1 would increase her utility from 1 to
0 by forming alone a new coalition. It follows that in any Nash equilibrium C
(recall that by Theorem 1 a Nash equilibrium always exists) players 1, 2 and 3
belong to the same coalition.</p>
      <p>It can be easily veri ed that u1(C) = u3(C) = 2 and u2(C) = 2 2 .
Moreover, since u3(C) = , it follows that for any i 4, ui(C) = .
.
.
.</p>
      <p>3
1
2
(i; j) vi;j
(1,2) 1
(1,3) 1
(2,3) 1
Fig. 3. Graph G and valuations vi;j .</p>
      <sec id="sec-4-1">
        <title>Therefore,</title>
        <p>SW(C) = 2(2
) + 2
2
(n
3)
&lt; 0
for n going to in nite.</p>
        <p>In order to complete the proof, it is su cient to note that there exists a
coalition structure (for instance the one in which players 1 and 2 belong to the
same coalition and all other players are alone in di erent coalitions) with positive
social welfare.
tu</p>
        <p>Now we focus our attention on the SW social welfare function and we show
that PoS is unbounded for tending to 1.</p>
        <p>Theorem 7. Given any M &gt; 0, there exist a value of , a graph G and a
function v (admitting also negative valuations) such that PoS(G(G; v; )) &gt; M .
6</p>
      </sec>
    </sec>
    <sec id="sec-5">
      <title>Open Problems</title>
      <p>Our work leads to many future research directions. It would be interesting to
analyze if it is possible to decrease the price of anarchy by restricting to
particular classes of graphs, as well as to study di erent stability notions such as
strong Nash outcomes and core stable outcomes. Moreover, the problem in which
valuations can be di erent from zero only between players i; j for which edge
(i; j) 2 E (and not for all pair of players) is worth studying. Finally, it would be
interesting to study the fractional version of hedonic games, in which the utility
of a player is divided by the number of players in the coalition she belongs to.</p>
    </sec>
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