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The strategic environment effect in beauty contest games

Author

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  • Nobuyuki Hanaki

    () (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur - CNRS - Centre National de la Recherche Scientifique)

  • Angela Sutan

    (BSB - Burgundy School of Business (BSB) - Ecole Supérieure de Commerce de Dijon Bourgogne (ESC))

  • Marc Willinger

    (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UM3 - Université Paul-Valéry - Montpellier 3 - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier, UM - Université de Montpellier)

Abstract

Recent experimental studies have shown that observed outcomes deviate significantly more from the Nash equilibrium when actions are strategic complements than when they are strategic substitutes. This " strategic environment effect " offers promising insights into the aggregate consequences of interactions among heterogeneous boundedly rational agents, but its macroeconomic implications have been questioned because the underlying experiments involve a small number of agents. We studied beauty contest games with a unique interior Nash equilibrium to determine the critical group size for triggering the strategic environment effect. We show theoretically that the effect operates for interactions among three or more agents. Our experimental results partially support this theory, showing a statistically significant strategic environment effect for groups of five or more agents. Our findings establish that experiments involving a small number of interacting agents can provide major insights into macro phenomena and bolster previous work done on such issues as price dynamics.

Suggested Citation

  • Nobuyuki Hanaki & Angela Sutan & Marc Willinger, 2016. "The strategic environment effect in beauty contest games," Working Papers halshs-01294915, HAL.
  • Handle: RePEc:hal:wpaper:halshs-01294915
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01294915
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    References listed on IDEAS

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    Cited by:

    1. Nagel, Rosemarie & Bühren, Christoph & Frank, Björn, 2017. "Inspired and inspiring: Hervé Moulin and the discovery of the beauty contest game," Mathematical Social Sciences, Elsevier, vol. 90(C), pages 191-207.
    2. repec:eee:gamebe:v:106:y:2017:i:c:p:188-208 is not listed on IDEAS
    3. Liu, Tianwei, 2016. "Heterogeneity in Guessing Games: An Experiment," MPRA Paper 75001, University Library of Munich, Germany.

    More about this item

    Keywords

    strategic complementarity; strategic substitutability; beauty contest games; iterative reasoning;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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