We study decisions that involve choosing between different numbers of options under time pressure using eye-tracking to monitor the search process of the subjects. We find that subjects are quite adept at optimizing within the set of items that they see, that the initial search process is random in value, that subjects use a stopping rule to terminate the search process that combines features of optimal search and satisficing, and that subjects search more often in certain focal regions of the display, which leads to choice biases. (JEL C91, D12, M31)
We used functional MRI (fMRI) to investigate human mental processes in a competitive interactive setting-the ''beauty contest'' game. This game is well-suited for investigating whether and how a player's mental processing incorporates the thinking process of others in strategic reasoning. We apply a cognitive hierarchy model to classify subject's choices in the experimental game according to the degree of strategic reasoning so that we can identify the neural substrates of different levels of strategizing. According to this model, high-level reasoners expect the others to behave strategically, whereas low-level reasoners choose based on the expectation that others will choose randomly. The data show that high-level reasoning and a measure of strategic IQ (related to winning in the game) correlate with the neural activity in the medial prefrontal cortex, demonstrating its crucial role in successful mentalizing. This supports a cognitive hierarchy model of human brain and behavior.bounded rationality ͉ cognitive hierarchies ͉ game theory ͉ neuronimaging ͉ theory of mind "
Acknowledgments: We wish to thank Ernan Haruvy for his comments on a preliminary version. We acknowledge financial support from the Spanish Ministry of Education through grants SEC98-1853-CE and DGES PB96-0300, and the EU-TMR Research Network ENDEAR (FMRX-CT98-0238). We thank the Spanish newspaper Expansión and the German magazine Spektrum der Wissenschaft for letting us use their platforms to run our experiments, Richard Thaler for giving us his data from the Financial Times experiment, and Gary Charness, Sjaak Hurkens and Bettina Rockenbach, for running an experiment in their classes.1 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.J.E.L. classification codes: C7, C9
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