The Predominant Role of Signal Precision in Experimental Beauty Contests
31 Pages Posted: 27 Jan 2015
Date Written: 2014
The weight assigned to public information in Keynesian beauty contest depends on the signal precision and on the degree of strategic complementarities. This experimental study shows that the response of subjects to changes in the signal precision and in the degree of strategic complementarities is qualitatively consistent with theoretical predictions, though quantitatively weaker. The weaker subjects’ response to changes in the signal precision, however, mainly drives the weight observed in the experiment, making strategic complementarities and overreaction an issue of second order.
Keywords: heterogeneous information, beauty contest, experiment, public information
JEL Classification: D82, D84, E58
Suggested Citation: Suggested Citation