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On Cognitive Ability and Learning in a Beauty Contest

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  • Oliver Schnusenberg
  • Andrés Gallo
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    Abstract

    We reinvestigate a version of the beauty contest originally developed by Keynes (1936) with a focus on cognitive reflection. Using a sample of 166 undergraduate students at a regional university in Florida, we confirm previous research by Burnham et al. (2009) that cognitive reflection, as measured by Frederick's (2005) cognitive reflection test, matters in the first round of the game; players with a higher CRT score pick significantly lower numbers, and their responses cluster more. Unlike previous research, however, we find that cognitive ability is important only when faced with a new situation. In subsequent rounds of the game, cognitive ability is subordinate to a learning effect and players' responses and the variability of responses are not significantly related to CRT scores. This finding is important in financial markets, since it implies that anticipating the decisions and actions of other players is a function of experience, not necessarily cognitive ability.

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    File URL: http://frank.mtsu.edu/~jee/2011/2_MS211_pp13to24.pdf
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    Bibliographic Info

    Article provided by Middle Tennessee State University, Business and Economic Research Center in its journal Journal for Economic Educators.

    Volume (Year): 11 (2011)
    Issue (Month): 1 (Summer)
    Pages: 13-24

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    Handle: RePEc:mts:jrnlee:v:11:y:2011:i:1:p:13-24

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    Related research

    Keywords: beauty contest; cognitive reflection test; cognitive ability; CRT;

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    References

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    1. Gary Klein, 1999. "Sources of Power: How People Make Decisions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611465, January.
    2. Burnham, Terence C. & Cesarini, David & Johannesson, Magnus & Lichtenstein, Paul & Wallace, Björn, 2009. "Higher cognitive ability is associated with lower entries in a p-beauty contest," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 171-175, October.
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    Cited by:
    1. David Gill & Victoria Prowse, 2013. "Cognitive ability and learning to play equilibrium: A level-k analysis," Economics Series Working Papers 641, University of Oxford, Department of Economics.
    2. Chen, Chia-Ching & Chiu, I-Ming & Smith, John & Yamada, Tetsuji, 2012. "Too smart to be selfish? Measures of cognitive ability, social preferences, and consistency," MPRA Paper 41078, University Library of Munich, Germany.
    3. Allred, Sarah & Duffy, Sean & Smith, John, 2013. "Cognitive Load and Strategic Sophistication," MPRA Paper 47997, University Library of Munich, Germany.

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