The Impact of NaïVe Advice and Observational Learning in Beauty-Contest Games
Tinbergen Institute Discussion Paper No. 07-015/1
35 Pages Posted: 2 Feb 2007
Date Written: January 2007
We study the impact of advice or observation on the depth of reasoning in an experimental beauty-contest game. Both sources of information trigger faster convergence to the equilibrium. Yet, we find that subjects who receive naïve advice outperform uninformed subjects permanently, whereas subjects who observe others' past behavior before making their decision do only have a temporary advantage over uninformed subjects. We show in a simulation that the latter result is due to subjects failing to make the most out of observing others.
Keywords: social learning, advice, observational learning, beauty-contest game
JEL Classification: C70, C72, C91
Suggested Citation: Suggested Citation