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A Game Theoretic Approach to Model Financal Markets: Guessing Game

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  • U. Baris Urhan
  • Zafer Akin

Abstract

How deep our reasoning and strategic thinking is and how strategic we think are crucial in making financial investment decisions because we need to guess how other people will behave. This paper studies Guessing Game (Beauty contest game) that helps us understand how people make decisions in environments where depth of reasoning plays a key role. We mainly summarize the findings of experimental studies focusing on this game and then link these findings to financial markets, especially to stock market players’ behavior. We also offer some extensions that may further contribute to produce better and more realistic models of financial markets.

Suggested Citation

  • U. Baris Urhan & Zafer Akin, 2011. "A Game Theoretic Approach to Model Financal Markets: Guessing Game," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 12(47), pages 43-74.
    • Handle: RePEc:bor:iserev:v:12:y:2011:i:47:p:43-74
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    File URL: http://www.borsaistanbul.com/datum/imkbdergi/EN/ISE_Review_47.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Ohtsubo, Yohsuke & Rapoport, Amnon, 2006. "Depth of reasoning in strategic form games," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 31-47, February.
    3. Sutter, Matthias, 2005. "Are four heads better than two? An experimental beauty-contest game with teams of different size," Economics Letters, Elsevier, vol. 88(1), pages 41-46, July.
    4. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-1326, December.
    5. Weber, Roberto A., 2003. "'Learning' with no feedback in a competitive guessing game," Games and Economic Behavior, Elsevier, vol. 44(1), pages 134-144, July.
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    Cited by:

    1. Zafer Akin, 2023. "Asymmetric guessing games," Theory and Decision, Springer, vol. 94(4), pages 637-676, May.

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