Chapter 45 Experimental Beauty Contest Games: Levels of Reasoning and Convergence to Equilibrium

This chapter presents data from a series of experiments with human subjects to test how individuals form expectations of others' expectations. The experiment has much in common with Keynes' insight regarding the behavior of investors in financial markets, and therefore the game is called beauty contest game in honor of Keynes. This chapter introduces new asymmetric guessing games in which subjects of the same group may have different parameters p or intervals to choose from in order to separate leading decision rules. The main difference was the high number of frequencies at or near the equilibrium. The choices closest to the winning number were typically those which came from subjects who did their own pre-experiments with students, friends or even with a newsgroup experiment.