The strategic environment effect in beauty contest games

Nobuyuki Hanaki, Angela Sutan and Marc Willinger

Working Papers from LAMETA, Universtiy of Montpellier

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.

Pages: 38 pages
Date: 2016-03
New Economics Papers: this item is included in nep-exp
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The strategic environment effect in beauty contest games (2019)
Working Paper: The strategic environment effect in beauty contest games (2019)
Working Paper: The strategic environment effect in beauty contest games (2018)
Working Paper: The strategic environment effect in beauty contest games (2018)
Working Paper: The Strategic Environment Effect in Beauty Contest Games (2016)
Working Paper: The strategic environment effect in beauty contest games (2016)
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