Performance in the beauty contest: How strategic discussion enhances team reasoning

This paper will analyze the influence that discussion has on the performance of two-player teams in an experimental beauty contest game. Teams were allowed to communicate via electronic chat. The findings suggest that teams are not more rational than individuals in terms of reasoning. However, strategically sophisticated discussion in teams such as the repetition of the experimental rules, as well as guesses at other players' behavior, positively influences their level of reasoning. On the other hand, simple communication without strategic elements does not enable the teams to improve their reasoning level. Focusing on the performance of teams in terms of distance to the target number, I demonstrate that the amount of information exchanged between team members improves the teams' performance if and only if the teams strategically discuss their choice. The experimental results underline the assumption that communication per se does not foster strategic thinking, but that sophisticated discussion in teams enables the players to succeed in a strategic environment such as a beauty contest game.