Cognitive Ability, Character Skills, and Learning to Play Equilibrium: A Level-k Analysis

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. In this paper we investigate how cognitive ability and character skills influence behavior, success and the evolution of play towards Nash equilibrium in repeated strategic interactions. We study behavior in a p-beauty contest experiment and find striking differences according to cognitive ability: more cognitively able subjects choose numbers closer to equilibrium, converge more frequently to equilibrium play and earn more even as behavior approaches the equilibrium prediction. To understand better how subjects with different cognitive abilities learn differently, we estimate a structural model of learning based on level-k reasoning. We find a systematic positive relationship between cognitive ability and levels; furthermore, the average level of more cognitively able subjects responds positively to the cognitive ability of their opponents, while the average level of less cognitively able subjects does not respond. Finally, we compare the influence of cognitive ability to that of character skills, and find that both cognition and personality affect behavior and learning. More agreeable and emotionally stable subjects perform better and learn faster, although the effect of cognitive ability on behavior is stronger than that of character skills.JEL Classification: C92, C73, D83

Is There a Development Gap in Rationality?

“…These measures have 19 In a non-strategic setting, Burks et al (2009) report a correlation of approximately 0.22 between IQ and switching more than once in Holt and Laury's (2002) multiple price list experiments. In a strategic setting, Gill and Prowse (2014) investigate the correlation between cognitive ability and non-cognitive skills and learning to play equilibrium in a repeated p-beauty contest experiment. They estimate a structural model based on level-k reasoning (Stahl and Wilson, 1995;Nagel, 1995;Duffy and Nagel, 1997), and find a systematic relationship between subjects' cognitive ability and their level-k types.…”

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“…Carpenter, Graham, and Wolf (2013) showed that subjects with higher scores in Raven's test more frequently win in Race to 5, 10, or 15 games 5 and guessed others' choices better in a 20-player beauty contest game. Finally, Gill and Prowse (2015) also reported that subjects with higher scores in Raven's test not only choose numbers closer to the equilibrium in a repeated 3-player beauty contest game, but also respond to the average score of other subjects in the group by choosing number close to the equilibrium when facing with others with higher scores than when facing with others with lower scores. Fehr and Huck (2015) reported similar results from a beauty contest game.…”

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“…18 The responses to the CRT are indeed a good proxy for the individuals' tendency to make impulsive versus reflective decisions. The CRT has been found to correlate with one's ability to delay gratification (Frederick, 2005) and to predict one's ability to refrain from using inaccurate heuristics in a variety of situations (Oechssler et al, 2009, Toplak et al, 2011 figuring out the equilibrium play in other games (Gill and Prowse, 2016). To test this hypothesis, we elicited a different measure of participants' cognitive ability to solve math problems.…”