IDEAS home Printed from https://ideas.repec.org/p/zbw/wzbeoc/spii2013306r.html
   My bibliography  Save this paper

Who knows it is a game? On strategic awareness and cognitive ability

Author

Listed:
  • Fehr, Dietmar
  • Huck, Steffen

Abstract

We introduce the notion of strategic awareness in experimental games which captures the idea that subjects realize they are playing a game and thus have to form beliefs about others' actions. The concept differs from both, rule understanding and rationality. We then turn to experimental evidence from a beauty contest game where we elicit measures of cognitive ability and beliefs about others' cognitive ability. We show that the effect of cognitive ability is highly non-linear. Subjects' behavior below a certain threshold choose numbers in the whole interval and does not correlate with beliefs about others ability. In contrast, choices of subjects who exceed the threshold avoid choices above 50 and react very sensitively to beliefs about others' cognitive ability.

Suggested Citation

  • Fehr, Dietmar & Huck, Steffen, 2014. "Who knows it is a game? On strategic awareness and cognitive ability," Discussion Papers, Research Unit: Economics of Change SP II 2013-306r, WZB Berlin Social Science Center.
  • Handle: RePEc:zbw:wzbeoc:spii2013306r
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/112741/1/83195616X.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2010. "Are Risk Aversion and Impatience Related to Cognitive Ability?," American Economic Review, American Economic Association, vol. 100(3), pages 1238-1260, June.
    2. Allred, Sarah & Duffy, Sean & Smith, John, 2016. "Cognitive load and strategic sophistication," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 162-178.
    3. Stahl Dale O. & Wilson Paul W., 1995. "On Players' Models of Other Players: Theory and Experimental Evidence," Games and Economic Behavior, Elsevier, vol. 10(1), pages 218-254, July.
    4. Brañas-Garza, Pablo & García-Muñoz, Teresa & González, Roberto Hernán, 2012. "Cognitive effort in the Beauty Contest Game," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 254-260.
    5. Vincent P. Crawford & Miguel A. Costa-Gomes, 2006. "Cognition and Behavior in Two-Person Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 96(5), pages 1737-1768, December.
    6. Sumit Agarwal & Bhashkar Mazumder, 2013. "Cognitive Abilities and Household Financial Decision Making," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 193-207, January.
    7. Hanming Fang & Michael P. Keane & Dan Silverman, 2008. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 303-350, April.
    8. Georganas, Sotiris & Healy, Paul J. & Weber, Roberto A., 2015. "On the persistence of strategic sophistication," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 369-400.
    9. Burchardi, Konrad B. & Penczynski, Stefan P., 2014. "Out of your mind: Eliciting individual reasoning in one shot games," Games and Economic Behavior, Elsevier, vol. 84(C), pages 39-57.
    10. Larbi Alaoui & Antonio Penta, 2016. "Endogenous Depth of Reasoning," Review of Economic Studies, Oxford University Press, vol. 83(4), pages 1297-1333.
    11. Christelis, Dimitris & Jappelli, Tullio & Padula, Mario, 2010. "Cognitive abilities and portfolio choice," European Economic Review, Elsevier, vol. 54(1), pages 18-38, January.
    12. David Gill & Victoria Prowse, 2016. "Cognitive Ability, Character Skills, and Learning to Play Equilibrium: A Level-k Analysis," Journal of Political Economy, University of Chicago Press, vol. 124(6), pages 1619-1676.
    13. Inderst, Roman & Ottaviani, Marco, 2012. "How (not) to pay for advice: A framework for consumer financial protection," Journal of Financial Economics, Elsevier, vol. 105(2), pages 393-411.
    14. Grimm, Veronika & Mengel, Friederike, 2012. "An experiment on learning in a multiple games environment," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2220-2259.
    15. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-1326, December.
    16. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2013. "Structural Models of Nonequilibrium Strategic Thinking: Theory, Evidence, and Applications," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 5-62, March.
    17. Ho, Teck-Hua & Camerer, Colin & Weigelt, Keith, 1998. "Iterated Dominance and Iterated Best Response in Experimental "p-Beauty Contests."," American Economic Review, American Economic Association, vol. 88(4), pages 947-969, September.
    18. Huck, Steffen & Weizsacker, Georg, 1999. "Risk, complexity, and deviations from expected-value maximization: Results of a lottery choice experiment," Journal of Economic Psychology, Elsevier, vol. 20(6), pages 699-715, December.
    19. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    20. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2009. "Cognitive abilities and behavioral biases," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 147-152, October.
    21. Burnham, Terence C. & Cesarini, David & Johannesson, Magnus & Lichtenstein, Paul & Wallace, Björn, 2009. "Higher cognitive ability is associated with lower entries in a p-beauty contest," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 171-175, October.
    22. Agranov, Marina & Potamites, Elizabeth & Schotter, Andrew & Tergiman, Chloe, 2012. "Beliefs and endogenous cognitive levels: An experimental study," Games and Economic Behavior, Elsevier, vol. 75(2), pages 449-463.
    23. Avi Goldfarb & Mo Xiao, 2011. "Who Thinks about the Competition? Managerial Ability and Strategic Entry in US Local Telephone Markets," American Economic Review, American Economic Association, vol. 101(7), pages 3130-3161, December.
    24. Hoppe, Eva I. & Kusterer, David J., 2011. "Behavioral biases and cognitive reflection," Economics Letters, Elsevier, vol. 110(2), pages 97-100, February.
    25. Eileen Chou & Margaret McConnell & Rosemarie Nagel & Charles Plott, 2009. "The control of game form recognition in experiments: understanding dominant strategy failures in a simple two person “guessing” game," Experimental Economics, Springer;Economic Science Association, vol. 12(2), pages 159-179, June.
    26. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    27. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages 80-95, March.
    28. Gill, David & Prowse, Victoria, 2012. "Cognitive ability and learning to play equilibrium: A level-k analysis," MPRA Paper 38317, University Library of Munich, Germany, revised 23 Apr 2012.
    29. Carpenter, Jeffrey & Graham, Michael & Wolf, Jesse, 2013. "Cognitive ability and strategic sophistication," Games and Economic Behavior, Elsevier, vol. 80(C), pages 115-130.
    30. Strzalecki, Tomasz, 2014. "Depth of reasoning and higher order beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 108-122.
    31. repec:mpr:mprres:7497 is not listed on IDEAS
    32. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    33. Grosskopf, Brit & Nagel, Rosemarie, 2008. "The two-person beauty contest," Games and Economic Behavior, Elsevier, vol. 62(1), pages 93-99, January.
    34. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2013. "Who Is ‘Behavioral’? Cognitive Ability And Anomalous Preferences," Journal of the European Economic Association, European Economic Association, vol. 11(6), pages 1231-1255, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Duffy, Sean & Naddeo, JJ & Owens, David & Smith, John, 2016. "Cognitive load and mixed strategies: On brains and minimax," MPRA Paper 89720, University Library of Munich, Germany.
    2. repec:eee:gamebe:v:109:y:2018:i:c:p:156-183 is not listed on IDEAS
    3. Cabrales, Antonio & Espin, Antonio & Kujal, Praveen & Rassenti, Stephen, 2017. "Humans' (incorrect) distrust of reflective decisions," CEPR Discussion Papers 11949, C.E.P.R. Discussion Papers.
    4. Basteck, Christian & Mantovani, Marco, 2018. "Cognitive ability and games of school choice," Games and Economic Behavior, Elsevier, vol. 109(C), pages 156-183.
    5. repec:eee:gamebe:v:106:y:2017:i:c:p:209-226 is not listed on IDEAS
    6. Carlos Alós-Ferrer & Johannes Buckenmaier, 2018. "Cognitive sophistication and deliberation times," ECON - Working Papers 292, Department of Economics - University of Zurich, revised Apr 2019.

    More about this item

    Keywords

    strategic awareness; cognitive ability; beauty contest;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D0 - Microeconomics - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:wzbeoc:spii2013306r. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - Leibniz Information Centre for Economics). General contact details of provider: http://edirc.repec.org/data/owwzbde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.