Cognition and Behavior in Two-Person Guessing Games: An Experimental Study

54 Pages Posted: 6 Sep 2004

See all articles by Miguel A. Costa-Gomes

Miguel A. Costa-Gomes

University of Aberdeen Business School

Vincent P. Crawford

University of California, San Diego (UCSD) - Department of Economics; University of Oxford - Department of Economics

Date Written: August 2004

Abstract

"...professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees."

- John Maynard Keynes, The General Theory of Employment, Interest, and Money

This paper reports experiments that elicit subjects' initial responses to 16 dominance-solvable two-person guessing games. The structure is publicly announced except for varying payoff parameters, to which subjects are given free access, game by game, through an interface that records their information searches. Varying the parameters allows strong separation of the behavior implied by leading decision rules and makes monitoring search a powerful tool for studying cognition. Many subjects' decisions and searches show clearly that they understand the games and seek to maximize their payoffs, but have boundedly rational models of others' decisions, which lead to systematic deviations from equilibrium.

Keywords: Noncooperative games, experimental economics, guessing games, bounded

JEL Classification: C72, C92, C51

Suggested Citation

Costa-Gomes, Miguel A. and Crawford, Vincent P., Cognition and Behavior in Two-Person Guessing Games: An Experimental Study (August 2004). Available at SSRN: https://ssrn.com/abstract=586281 or http://dx.doi.org/10.2139/ssrn.586281

Miguel A. Costa-Gomes (Contact Author)

University of Aberdeen Business School ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Vincent P. Crawford

University of California, San Diego (UCSD) - Department of Economics ( email )

Department of Economics
9500 Gilman Drive
La Jolla, CA 92093-0508
United States
302-729-3230 (Phone)

HOME PAGE: http://econweb.ucsd.edu/~v2crawford/

University of Oxford - Department of Economics ( email )

All Souls College
Oxford, Oxfordshire OX1 4AL
United Kingdom
+44-1865-279339 (Phone)

HOME PAGE: http://econweb.ucsd.edu/~v2crawford/

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