Cognitive Reflection in Experimental Anchored Guessing Games

Previous studies have found that subjects with higher CRT scores usually make choices that are closer to Nash equilibrium. In this paper, we disentangle two potential explanations for this finding: it could be that high CRT subjects possess a higher reasoning level, or it could be that their reasoning process begins from a focal point (called ’seed’) that is inherently closer to equilibrium. For this purpose, we use an extended level-k framework where individuals have free subjective beliefs about level-0 behavior. Our experimental design consists of three anchored guessing games, which are a generalized type of beauty contests. We find that the main factor that contributes to a smaller distance to the Nash equilibrium in subjects with a higher CRT score is that they iterate more often in their reasoning process. However, we do not find evidence that CRT score determines the distance from the starting seeds to Nash equilibrium