How Cognitive Skills Affect Strategic Behavior: Cognitive Ability, Fluid Intelligence and Judgment

We explore the influence of cognitive ability and judgment on strategic behavior in the beauty contest game. Using the level-k model of bounded rationality, cognitive ability and judgment both predict higher level strategic thinking. However, individuals with better judgment choose the Nash equilibrium action less frequently, and we uncover a novel dynamic mechanism that sheds light on this pattern. Taken together, our results indicate that fluid (i.e., analytical) intelligence is a primary driver of strategic level-k thinking, while facets of judgment that are distinct from fluid intelligence drive the lower inclination of high judgment individuals to choose the equilibrium action.

Keywords: cognitive ability, judgment, fluid intelligence, matrix reasoning, beauty contest, strategic sophistication, level-$k$, experiment, game theory

JEL Classification: C92, C72, D91

Suggested Citation: Suggested Citation

Gill, David and Knepper, Zachary and Prowse, Victoria L. and Zhou, Junya, How Cognitive Skills Affect Strategic Behavior: Cognitive Ability, Fluid Intelligence and Judgment (July 22, 2024). Games and Economic Behavior, forthcoming, Available at SSRN: https://ssrn.com/abstract=4465561 or http://dx.doi.org/10.2139/ssrn.4465561