Strategizing with AI: Insights from a Beauty Contest Experiment

18 Pages Posted: 6 Apr 2024

See all articles by Dmitry Dagaev

Dmitry Dagaev

New Economic School (NES); National Research University Higher School of Economics (Moscow)

Sofiia Paklina

National Research University Higher School of Economics (Moscow) - International Laboratory of Intangible-driven Economy

Petr Parshakov

National Research University Higher School of Economics

Date Written: March 10, 2024

Abstract

A Keynesian beauty contest is a wide class of games of guessing the most popular strategy among other players. In particular, guessing a fraction of a mean of numbers chosen by all players is a classic behavioral experiment designed to test level-k reasoning patterns among various groups of people. The previous literature reveals that the sophistication level of opponents is an important factor affecting the outcome of the game. Smarter decision makers choose strategies that are closer to theoretical Nash equilibrium and demonstrate faster convergence to equilibrium in iterated contests with information revelation. In the level-k reasoning framework, the Nash equilibrium is played only by infinitely advanced players. We run a series of virtual experiments with an AI player, GPT-4, who plays against various groups of players. We test how advanced is this learning language model compared to human players by replicating some of the classic experiments. It is shown that GPT-4 takes into account the opponents' level of sophistication and adapts by changing the strategy. However, the transformation of the particular values of parameters to output data does not necessarily respect the comparative statics of the model. Lasso regression analysis revealed a closer alignment of AI-generated guesses to strategic thinking compared to human participants. Our results contribute to the discussion on the accuracy of modeling human economic agents by artificial intelligence.

Keywords: beauty contest, GPT-4, AI, bounded rationality

JEL Classification: C90, D91, C72

Suggested Citation

Dagaev, Dmitry and Paklina, Sofiia and Parshakov, Petr, Strategizing with AI: Insights from a Beauty Contest Experiment (March 10, 2024). Available at SSRN: https://ssrn.com/abstract=4754435 or http://dx.doi.org/10.2139/ssrn.4754435

Dmitry Dagaev (Contact Author)

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

National Research University Higher School of Economics (Moscow) ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Sofiia Paklina

National Research University Higher School of Economics (Moscow) - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Petr Parshakov

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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