Speculation Rather than Enterprise? Keynes’ Beauty Contest Revisited in Theory and Experiment

GATE Lyon Saint-Etienne, Working Paper 1712, March 2017

48 Pages Posted: 9 Mar 2017 Last revised: 29 Apr 2018

See all articles by Kene Boun My

Kene Boun My

University of Strasbourg - Bureau of Economic Theory and Application (BETA); University of Strasbourg

Camille Cornand

Groupe d'Analyse et de Théorie Economique (GATE), CNRS, University of Lyon

Rodolphe dos Santos Ferreira

University of Angers - Bureau of Economic Theory and Application (BETA)

Date Written: April 1, 2018

Abstract

In Keynes’ beauty contest, agents make evaluations reflecting both an expected fundamental value and the conventional value expected to be set by the market. They thus respond to fundamental and coordination motives, respectively, the prevalence of either being set exogenously. Our contribution is twofold. First, we propose a valuation game in which agents strategically choose how to weight each motive. This game emphasises public information leads agents to favour the coordination motive. Second, we test the game through a laboratory experiment. Subjects tend to conform to theoretical predictions, except when fundamental uncertainty is low relative to strategic uncertainty.

Keywords: dispersed information, public information, beauty contest, coordination, experiment

JEL Classification: D84, C92, E12

Suggested Citation

Boun My, Kene and Cornand, Camille and dos Santos Ferreira, Rodolphe, Speculation Rather than Enterprise? Keynes’ Beauty Contest Revisited in Theory and Experiment (April 1, 2018). GATE Lyon Saint-Etienne, Working Paper 1712, March 2017, Available at SSRN: https://ssrn.com/abstract=2929999 or http://dx.doi.org/10.2139/ssrn.2929999

Kene Boun My (Contact Author)

University of Strasbourg - Bureau of Economic Theory and Application (BETA) ( email )

France

University of Strasbourg ( email )

61, avenue de la foret noire
4, rue Blaise Pascal
Strasbourg, Alsace 3000
France

Camille Cornand

Groupe d'Analyse et de Théorie Economique (GATE), CNRS, University of Lyon ( email )

93 Chemin des Mouilles
Ecully, 69130
France

Rodolphe Dos Santos Ferreira

University of Angers - Bureau of Economic Theory and Application (BETA) ( email )

61, avenue de la Foret Noire
Strasbourg, 67000
France
+33 03 9024 2073 (Phone)
+33 03 9024 2071 (Fax)

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