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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(More)
".. . professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those(More)
History contains many colorful examples where speculative trade in some commodity or financial asset generated a phase of rapidly increasing prices, followed by a sudden collapse (see, e.g., Edward Chancellor, 1999, or Charles Kindleberger, 2001). One famous case cited by many economists (see Peter Garber, 2000, pp. 127–31, for references) is the Dutch "(More)
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(More)
The theory of global games has shown that coordination games with multiple equilib-ria may have a unique equilibrium if certain parameters of the payoff function are private information instead of common knowledge. We report the results of an experiment designed to test the predictions of this theory. Comparing sessions with common and private information,(More)
This paper explores predictability of behavior in coordination games with multiple equilibria. In a laboratory experiment we measure subjects' certainty equivalents for three coordination games and one lottery. Attitudes towards strategic uncertainty in coordination games are related to risk aversion, experience seeking, gender and age. From the(More)
We introduce a two-person beauty contest game with a unique Nash equilibrium that is identical to the game with many players. However, iterative reasoning is unnecessary in the two-person game as choosing zero is a weakly dominant strategy. Despite this " easier " solution concept, we find that a large majority of players do not choose zero. This is the(More)
In the lowest unique positive integer (LUPI) game, players pick positive integers and the player who chose the lowest unique number (not chosen by anyone else) wins a …xed prize. We derive theoretical equilibrium predictions, assuming fully rational players with Poisson-distributed uncertainty about the number of players. We also derive predictions for(More)
Some current utility models presume that people are concerned with their relative standing in a reference group. If this is true, do certain types care more about this than others? Using simple binary decisions and self-reported happiness, we investigate both the prevalence of " difference aversion " and whether happiness levels influence the taste for(More)
A typical consumer decision involves choosing between a large number of options under time pressure. This gives rise to three important questions: (1) What are the computational processes used by consumers to make these choices? 2) How do the processes, and their performance, change with the number of options? And (3) Do they exhibit systematic biases that(More)