|By:||Camille Cornand (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)
Rodolphe Dos Santos Ferreira (BETA-Strasbourg University, 61 avenue de la Forêt Noire – 67085 Strasbourg Cedex, France; Catolica Lisbon School of Business and Economics)
In Keynes’ beauty contest, agents have to choose actions in accordance with an expected fundamental value and with the conventional value expected to be set by the market. In doing so, agents respond to a fundamental and to a coordination motive respectively, the prevalence of either motive being set exogenously. Our contribution is to consider whether agents favor the fundamental or the coordination motive as the result of a strategic choice that generates a strong strategic complementarity of agents’ actions. We show that the coordination motive tends to prevail over the fundamental one, which yields a disconnection of activity away from the fundamental. A valuation game and a competition game are provided as illustrations of this general framework.
|Keywords:||beauty contest, financial markets, indeterminacy, oligopolistic competition,strategic complementarities|
|JEL:||D43 D84 E12 E44 L13|
Backward induction is a widely accepted principle for predicting behavior in sequential games. In the classic example of the “centipede game,” however, players frequently violate this principle. An alternative is a “dynamic level-k” model, where players choose a rule from a rule hierarchy. The rule hierarchy is iteratively defined such that the level-k rule is a best response to the level-(k-1) rule, and the level-∞ rule corresponds to backward induction. Players choose rules based on their best guesses of others’ rules and use historical plays to improve their guesses. The model captures two systematic violations of backward induction in centipede games, limited induction and repetition unraveling. Because the dynamic level-k model always converges to backward induction over repetition, the former can be considered to be a tracing procedure for the latter. We also examine the generalizability of the dynamic level-k model by applying it to explain systematic violations of backward induction in sequential bargaining games. We show that the same model is capable of capturing these violations in two separate bargaining experiments.
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- 這篇和選美賽局 beauty contest 有關
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In this paper we investigate how cognitive ability influences behavior, success and the evolution of play towards Nash equilibrium in repeated strategic interactions. We study behavior in a p-beauty contest experiment and find striking differences according to cognitive ability: more cognitively able subjects choose numbers closer to equilibrium, converge more frequently to equilibrium play and earn more even as behavior approaches the equilibrium prediction. To understand better how subjects with different cognitive abilities learn differently, we estimate a structural model of learning based on level-k reasoning. We find a systematic positive relationship between cognitive ability and levels; furthermore, the average level of more cognitively able subjects responds positively to the cognitive ability of their opponents, while the average level of less cognitively able subjects does not respond at all. Our results suggest that, in strategic environments, higher cognitive ability translates into better analytic reasoning and a better ‘theory of mind’
|Keywords:||Cognitive ability; Bounded rationality; Learning; Convergence; Level-k; Nonequilibrium behavior; Beauty contest; Repeated games; Structural modeling; Theory of mind; Intelligence; Raven test|