Strategic Complexity and the Value of Thinking

26 Pages Posted: 25 Sep 2017

See all articles by David Gill

David Gill

Purdue University, Department of Economics

Victoria L. Prowse

Purdue University - Department of Economics; IZA Institute of Labor Economics; German Institute for Economic Research (DIW Berlin)

Date Written: September 22, 2017

Abstract

Response times are a simple low-cost indicator of the process of reasoning in strategic games. In this paper, we leverage the dynamic nature of response-time data from repeated strategic interactions to measure the strategic complexity of a situation by how long people think on average when they face that situation (where we categorize situations according to the characteristics of play in the previous round). We find that strategic complexity varies significantly across situations, and we find considerable heterogeneity in how responsive subjects' thinking times are to complexity. We also study how variation in response times at the individual level across rounds affects strategic behavior and success. We find that 'overthinking' is detrimental to performance: when a subject thinks for longer than she would normally do in a particular situation, she wins less frequently and earns less. The behavioral mechanism that drives the reduction in performance is a tendency to move away from Nash equilibrium behavior. Overthinking is detrimental even though subjects who think for longer on average tend to be more successful. Finally, cognitive ability and personality have no effect on average response times.

Keywords: Response time; decision time; thinking time; strategic complexity; game theory; strategic games; repeated games; beauty contest; cognitive ability; personality

Suggested Citation

Gill, David and Prowse, Victoria L., Strategic Complexity and the Value of Thinking (September 22, 2017). Available at SSRN: https://ssrn.com/abstract=3041519 or http://dx.doi.org/10.2139/ssrn.3041519

David Gill (Contact Author)

Purdue University, Department of Economics ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

Victoria L. Prowse

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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