Who knows it is a game? On strategic awareness and cognitive ability
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We examine strategic awareness in experimental games, that is, the question of whether subjects realize they are playing a game and thus have to form beliefs about others’ actions. We conduct a beauty contest game and elicit measures of cognitive ability and beliefs about others’ cognitive ability. We show that the effect of cognitive ability is highly non-linear. Subjects below a certain threshold choose numbers in the whole interval and their behavior does not correlate with beliefs about others’ ability. In contrast, subjects who exceed the threshold avoid choices above 50 and react very sensitively to beliefs about the cognitive ability of others.
KeywordsCognitive ability Beliefs Beauty contest Strategic sophistication Strategic awareness
JEL ClassificationC7 C9 D0
We thank the Editor, Jacob Goeree, and two anonymous reviewers for thoughtful comments. We are also grateful to Terry Burnham, Brit Grosskopf, Rosemarie Nagel, Joerg Oechssler and Andrew Schotter for helpful conversations as well as seminar participants for comments. We thank David Cesarini, Pablo Branas-Garza and Teresa Garcia-Munoz for sharing their data. Financial support from the Deutsche Forschungsgemeinschaft (DFG) through the SFB 649 “Economic Risk” is gratefully acknowledged.
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