Understanding Dynamic Interactions

Abstract

Dealing with a problem is a two-step process consisting of understanding followed by solving. This article delves into the study of understanding within the context of dynamic interactions. We introduce the same backward-induction problem using two distinct representations. The first one resembles a standard game-theoretic tree. In the second one, subjects are not given direct connections between the nodes but receive all necessary information to construct a tree. Our study consists of 27 different interactions, each treated as a separate experiment, and involves 4,788 subjects. Two significant outcomes emerge. First, the process of understanding proves to be a formidable challenge. Second, within the scope of our experiment, understanding appears to be more difficult than solving.

Keywords: understanding, tree construction, solving, backward induction, finite dynamic games, mobile experiment

JEL Classification: C72, C99, D91