p-Beauty Contest With Differently Informed Players: An Experimental Study
Trifunović, D., & Stamenković, M.
Abstract:
The beauty contest stems from Keyne’s famous book where he uses a beauty contest game to illustrate how investors make their decisions in financial markets. In this paper we analyse an experimental p-beauty contest. In this game players choose a number from the closed interval. The winner of the game is a players whose chosen number is closest to 2/3 of the mean of all chosen numbers. In this game players have to eliminate dominated strategies, and the game has the unique equilibrium. Players are divided in different rationality levels according to their ability to make iterated elimination of dominated strategies. More precisely, we calculate rationality level of players by using the logic of iterated best responses. The game is played in two rounds with large number of players. In the first round all players are symmetric, whereas in the second round we divide players into three groups: uninformed, semi-informed and informed. Our objective is to study the impact of different information on players‟ decisions. Uninformed players don’t know the previous round mean, semi-informed players know the previous round mean and informed players obtain information about previous round mean and equilibrium outcome. We find the fastest convergence to equilibrium for informed players, followed by semi-informed and uninformed. We also find that informed players significantly increase their depth of reasoning in the second round, while uninformed and semi-informed players do not increase significantly their depth of reasoning in the second round.
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APA citation
- Trifunović, D., & Stamenković, M. (2012). “p-Beauty” Contest With Differently Informed Players: An Experimental Study. International Journal of Economic Sciences, I(2), 117–137.