The strategic environment effect in beauty contest gamesNobuyuki Hanaki, Yukio Koriyama (), Angela Sutan and Marc Willinger Games and Economic Behavior, 2019, vol. 113, issue C, 587-610 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, and we use both theory and experiments to shed light on its effectiveness. Based on cognitive hierarchy and level-K models, we show theoretically that the effect is operative for interactions among three or more agents. Our experimental results show a statistically significant strategic environment effect for groups of five or more agents, establishing its robustness against the increase in the population size. Keywords: Beauty contest games; Iterative reasoning; Strategic substitutability; Strategic complementarity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:113:y:2019:i:c:p:587-610 DOI: 10.1016/j.geb.2018.11.006 Access Statistics for this article Games and Economic Behavior is currently edited by E. Kalai More articles in Games and Economic Behavior from Elsevier |
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