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Guessing with negative feedback: An experiment

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Author Info

  • Sutan, Angela
  • Willinger, Marc

Abstract

We investigate experimentally a new variant of the beauty contest game (BCG) in which players' actions are strategic substitutes (a negative feedback BCG). Our results show that chosen numbers are closer to the rational expectation equilibrium than in a strategic complements environment (a positive feedback BCG). We also find that the estimated average depth of reasoning from the cognitive hierarchy model does not differ between the two environments. We show that the difference may be attributed to the fact that additional information is more valuable when players' actions are strategic substitutes rather than strategic complements, in line with other recent experimental findings.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 5 (May)
Pages: 1123-1133

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:5:p:1123-1133

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Guessing games Negative feedback Strategic substitutes vs. strategic complements;

References

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  1. Güth, Werner & Kocher, Martin & Sutter, Matthias, 2001. "Experimental 'beauty contests' with homogeneous and heterogeneous players and with interior and boundary equilibria," SFB 373 Discussion Papers 2001,45, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Jean-Robert Tyran & Ernst Fehr, 2002. "Limited Rationality and Strategic Interaction - The Impact of the Strategic Environment on Nominal Inertia," University of St. Gallen Department of Economics working paper series 2002 2002-25, Department of Economics, University of St. Gallen.
  3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  4. Haltiwanger, John C & Waldman, Michael, 1989. "Limited Rationality and Strategic Complements: The Implications for Macroeconomics," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 463-83, August.
  5. Binmore, Ken, 1988. "Modeling Rational Players: Part II," Economics and Philosophy, Cambridge University Press, vol. 4(01), pages 9-55, April.
  6. Stahl, Dale O., 1998. "Is step-j thinking an arbitrary modelling restriction or a fact of human nature?," Journal of Economic Behavior & Organization, Elsevier, vol. 37(1), pages 33-51, September.
  7. John Haltiwanger & Michael Waldman, 1983. "Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity," UCLA Economics Working Papers 303, UCLA Department of Economics.
  8. Xavier Gabaix & David Laibson & Guillermo Moloche & Stephen Weinberg, 2006. "Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model," American Economic Review, American Economic Association, vol. 96(4), pages 1043-1068, September.
  9. Guesnerie, R., 1989. "An Exploration of the Eductive Justifications of the Rational Expectations Hypotbesis," DELTA Working Papers 89-24, DELTA (Ecole normale supérieure).
  10. Stahl, Dale O., 1996. "Boundedly Rational Rule Learning in a Guessing Game," Games and Economic Behavior, Elsevier, vol. 16(2), pages 303-330, October.
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Citations

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Cited by:
  1. Bao, Te & Duffy, John, 2014. "Adaptive vs. eductive learning: Theory and evidence," Research Report 14002-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  2. Hommes, C.H., 2010. "The Heterogeneous Expectations Hypothesis: Some Evidence from the Lab," CeNDEF Working Papers 10-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  3. Anufriev, M. & Hommes, C.H. & Philipse, R., 2010. "Evolutionary Selection of Expectations in Positive and Negative Feedback Markets," CeNDEF Working Papers 10-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  4. Eizo Akiyama & Nobuyuki Hanaki & Ryuchiro Ishikawa, 2012. "Effect of uncertainty about others’ rationality in experimental asset markets," AMSE Working Papers 1234, Aix-Marseille School of Economics, Marseille, France.
  5. Sonnemans, Joep & Tuinstra, Jan, 2010. "Positive expectations feedback experiments and number guessing games as models of financial markets," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 964-984, December.
  6. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2012. "Effect of Uncertainty about Others' Rationality in Experimental Asset Markets: An Experimental Analysis," Working Papers halshs-00793613, HAL.
  7. Graf Lambsdorff, Johann & Schubert, Manuel & Giamattei, Marcus, 2011. "On the role of heuristics: Experimental evidence on inflation dynamics," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-63-11, University of Passau, Faculty of Business and Economics.
  8. Tedeschi, Gabriele & Iori, Giulia & Gallegati, Mauro, 2012. "Herding effects in order driven markets: The rise and fall of gurus," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 82-96.
  9. Jan Tuinstra & Joep Sonnemans & Cars Hommes & Peter Heemeijer, 2006. "Price Stability and Volatility in Markets with Positive and Negative Expectations Feedback: An Experimental Investigation," Working Papers wp06-18, Warwick Business School, Finance Group.
  10. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2013. "It is Not Just Confusion! Strategic Uncertainty in an Experimental Asset Market," Working Papers halshs-00854513, HAL.

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