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Incentives and Strategic Behaviour: An Experiment

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  • Esteban Casanelles, Teresa
  • Gonçalves, Duarte

Abstract

How do incentive levels affect strategic behaviour? We address this question with an experiment that separately identifies own- and opponent-incentive effects in two dominance-solvable games that differ in strategic complexity. Higher own incentives favour more strategically sophisticated actions and increase best responding to stated beliefs. Beliefs shift in a parallel direction and participants expect more sophisticated opponent actions. Furthermore, while higher own incentives increase belief accuracy, opponents with higher incentives are harder to predict. Higher incentives also increase response times, and longer response times are associated with better performance and more sophisticated actions and beliefs. Taken together, the evidence suggests that incentives affect strategic behaviour through two main channels: by reducing payoff-dependent mistakes and by increasing the effort devoted to reasoning, with the returns to that effort shaped by strategic complexity of the environment.

Suggested Citation

  • Esteban Casanelles, Teresa & Gonçalves, Duarte, 2026. "Incentives and Strategic Behaviour: An Experiment," CEPR Discussion Papers 21338, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21338
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    File URL: https://cepr.org/publications/DP21338
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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