A Mobile Experiment on Perception in Dynamic Games

20 Pages Posted: 13 Aug 2019 Last revised: 5 Nov 2019

See all articles by Konrad Grabiszewski

Konrad Grabiszewski

Mohammad bin Salman College

Alex R. Horenstein

University of Miami - School of Business Administration - Department of Economics

Date Written: August 10, 2019

Abstract

While a game-theoretic tree is an unrivaled way of representing dynamic interactions, no real-life interaction comes with its tree representation. Before backward inducting, players must understand the interaction they participate in – we say that they go through a process of tree construction. We test whether people correctly construct trees; i.e., whether their perception of interactions is consistent with how theory models these interactions. We design a test that reveals subject's unobservable perception through her observable choices. Replicated in 27 different interactions with 5,001 subjects from 133 countries, the test shows that between 13% and 63% of subjects fail at tree construction. Data comes from Blues and Reds, a mobile app that functions as an experiment. We argue that our result is detrimental to the internal validity of testing backward induction. We also argue that tree construction is more challenging than backward induction.

Keywords: dynamic games, tree construction, perception, backward induction, experimental game theory, mobile experiment

JEL Classification: C72, C99, D91

Suggested Citation

Grabiszewski, Konrad and Horenstein, Alex R., A Mobile Experiment on Perception in Dynamic Games (August 10, 2019). University of Miami Business School Research Paper No. 3435573. Available at SSRN: https://ssrn.com/abstract=3435573 or http://dx.doi.org/10.2139/ssrn.3435573

Konrad Grabiszewski

Mohammad bin Salman College ( email )

KAEC
Saudi Arabia

Alex R. Horenstein (Contact Author)

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

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