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Beauty contested: how much of Keynes' remains in behavioural economics' beauty contests?

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  • Alessandro Lanteri
  • Anna Carabelli

Abstract

In one of the most famous passages of the economic literature, John Maynard Keynes likens the stock market to a beauty contest (BC), in which the winners are those who anticipate the average opinion. In behavioural economics there have recently been attempts at investigating the BC experimentally. We argue that there exist important differences between Keynes' and behavioural economics' BCs. We identify several types of BCs and propose a taxonomy. We also suggest that, in spite of these differences, Keynes' theory of decision under uncertainty is central to understanding the actual behaviour observed in experimental BCs.

Suggested Citation

  • Alessandro Lanteri & Anna Carabelli, 2011. "Beauty contested: how much of Keynes' remains in behavioural economics' beauty contests?," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 18(2), pages 269-285.
  • Handle: RePEc:taf:eujhet:v:18:y:2011:i:2:p:269-285
    DOI: 10.1080/09672560903552512
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    References listed on IDEAS

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    1. Novarese, Marco & Lanteri, Alessandro, 2007. "Individual learning: theory formation, and feedback in a complex task," MPRA Paper 3049, University Library of Munich, Germany.
    2. Antoni Bosch-Domènech & José G. Montalvo & Rosemarie Nagel & Albert Satorra, 2002. "One, Two, (Three), Infinity, ...: Newspaper and Lab Beauty-Contest Experiments," American Economic Review, American Economic Association, vol. 92(5), pages 1687-1701, December.
    3. Anna Carabelli, 2002. "Speculation and reasonableness: a non-Bayesian theory of rationality," Chapters,in: Post Keynesian Econometrics, Microeconomics and the Theory of the Firm, chapter 10 Edward Elgar Publishing.
    4. Guth, Werner & Kocher, Martin & Sutter, Matthias, 2002. "Experimental 'beauty contests' with homogeneous and heterogeneous players and with interior and boundary equilibria," Economics Letters, Elsevier, vol. 74(2), pages 219-228, January.
    5. Duffy, John & Nagel, Rosemarie, 1997. "On the Robustness of Behaviour in Experimental "Beauty Contest" Games," Economic Journal, Royal Economic Society, vol. 107(445), pages 1684-1700, November.
    6. S. Berninghaus & W. Güth, 2007. "Experimental Economics," Chapters,in: Elgar Companion to Neo-Schumpeterian Economics, chapter 66 Edward Elgar Publishing.
    7. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-1326, December.
    8. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
    9. Alessandro Lanteri & Marco Novarese, 2008. "The beauty of the contest: A novel approach to experimental beauty contests," Economics Bulletin, AccessEcon, vol. 3(52), pages 1-10.
    10. repec:ebl:ecbull:v:3:y:2008:i:52:p:1-10 is not listed on IDEAS
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    Cited by:

    1. D'Orlando, Fabio & Sanfilippo, Eleonora, 2010. "Behavioral foundations for the Keynesian consumption function," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 1035-1046, December.
    2. Marcuzzo, Maria Cristina, 2012. "Speculation and regulation in commodity markets: The Keynesian approach in theory and practice," MPRA Paper 44131, University Library of Munich, Germany.

    More about this item

    Keywords

    Beauty contest; behavioural economics; Keynes; rationality;

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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