Paper #438

Title:

One, two, (three), infinity: Newspaper and lab beauty-contest experiments

Authors:

Rosemarie Nagel, Antoni Bosch-Domènech, Albert Satorra and José García Montalvo

Date:

November 1999

Abstract:

"Beauty-contest" is a game in which participants have to choose, typically, a number in [0,100], the winner being the person whose number is closest to a proportion of the average of all chosen numbers. We describe and analyze Beauty-contest experiments run in newspapers in UK, Spain, and Germany and find stable patterns of behavior across them, despite the uncontrollability of these experiments. These results are then compared with lab experiments involving undergraduates and game theorists as subjects, in what must be one of the largest empirical corroborations of interactive behavior ever tried. We claim that all observed behavior, across a wide variety of treatments and subject pools, can be interpreted as iterative reasoning. Level-1 reasoning, Level-2 reasoning and Level-3 reasoning are commonly observed in all the samples, while the equilibrium choice (Level-Maximum reasoning) is only prominently chosen by newspaper readers and theorists. The results show the empirical power of experiments run with large subject-pools, and open the door for more experimental work performed on the rich platform offered by newspapers and magazines.

Keywords:

Experiments, bounded rationality, Beauty-contest, parallelism, Leex

JEL codes:

C7, C9

Area of Research:

Behavioral and Experimental Economics

Published in:

American Economic Review, 92, 5, (2002)

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