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Incentives and Strategic Behaviour: An Experiment

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  • Teresa Esteban-Casanelles
  • Duarte Gonc{c}alves

Abstract

How and why do incentive levels affect strategic behaviour? This paper examines an experiment designed to identify the causal effect of scaling up incentives on choices, beliefs, and response times in dominance-solvable games. Higher incentives increase action sophistication and decrease mistake propensity, while beliefs become more accurate, and response times longer. We provide evidence that higher incentives increase cognitive effort, as proxied by longer response times, which in turn is associated with improved performance and predicts choice sophistication and belief accuracy. Overall, the data lend support to both payoff-dependent mistakes and costly reasoning models.

Suggested Citation

  • Teresa Esteban-Casanelles & Duarte Gonc{c}alves, 2023. "Incentives and Strategic Behaviour: An Experiment," Papers 2304.00412, arXiv.org, revised Feb 2025.
    • Handle: RePEc:arx:papers:2304.00412
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    References listed on IDEAS

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    1. Drew Fudenberg & Ryota Iijima & Tomasz Strzalecki, 2015. "Stochastic Choice and Revealed Perturbed Utility," Econometrica, Econometric Society, vol. 83, pages 2371-2409, November.
    2. Mattsson, Lars-Goran & Weibull, Jorgen W., 2002. "Probabilistic choice and procedurally bounded rationality," Games and Economic Behavior, Elsevier, vol. 41(1), pages 61-78, October.
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