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Playing the game the others want to play : Keynes’ beauty contest revisited

Author

Listed:
  • Kene Boun My

    (BETA - University of Strasbourg, 61 avenue de la Forˆet Noire - 67085 Strasbourg Cedex)

  • Camille Cornand

    (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France)

  • Rodolphe Dos Santos Ferreira

    (BETA-Strasbourg University, 61 avenue de la Forêt Noire - 67085 Strasbourg Cedex, France; Catolica Lisbon School of Business and Economics)

Abstract

In Keynes’ beauty contest, agents make evaluations reflecting both an expected fundamental value and the conventional value expected to be set by the market. They thus respond to fundamental and coordination motives, respectively, the prevalence of either being set exogenously. Our contribution is twofold. First, we propose a valuation game in which agents strategically choose how to weight each motive. This game emphasises public information leads agents to favour the coordination motive. Second, we test the game through a laboratory experiment. Subjects tend to conform to theoretical predictions, except when fundamental uncertainty is low relative to strategic uncertainty.

Suggested Citation

  • Kene Boun My & Camille Cornand & Rodolphe Dos Santos Ferreira, 2017. "Playing the game the others want to play : Keynes’ beauty contest revisited," Working Papers 1712, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    • Handle: RePEc:gat:wpaper:1712
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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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