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The strategic environment effect in beauty contest games

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  • Nobuyuki Hanaki
  • Angela Sutan
  • Marc Willnger

Abstract

Recent experimental studies have shown that observed outcomes deviate signiffcantly 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 offive 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 Willnger, 2016. "The strategic environment effect in beauty contest games," Working Papers 03-16, LAMETA, Universtiy of Montpellier.
  • Handle: RePEc:lam:wpaper:03-16
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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. Yukio Koriyama & Ali Ihsan Ozkes, 2017. "Condorcet Jury Theorem and Cognitive Hierarchies: Theory and Experiments," AMSE Working Papers 1708, Aix-Marseille School of Economics, France.
    3. Cars Hommes & Anita Kopányi-Peuker & Joep Sonnemans, "undated". "Bubbles, crashes and information contagion in large-group asset market experiments," Tinbergen Institute Discussion Papers 19-016/II, Tinbergen Institute.
    4. repec:eee:gamebe:v:106:y:2017:i:c:p:188-208 is not listed on IDEAS
    5. Liu, Tianwei, 2016. "Heterogeneity in Guessing Games: An Experiment," MPRA Paper 75001, University Library of Munich, Germany.

    More about this item

    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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