Iterated Dominance and Iterated Best-Response in Experimental P-Beauty Contests

Picture a thin country 1000 miles long, running north and south, like Chile. Several natural attractions are located at the northern tip of the country. Suppose each of n resort developers plans to locate a resort somewhere on the country's coast (and all spots are equally attractive). After all the resort locations are chosen, an airport will be built to serve tourists, at the average of all the locations including the natural attractions. Suppose most tourists visit all the resorts equally often, except for lazy tourists who visit only the resort closest to the airport; so the developer who locates closest to the airport gets a fixed bonus of extra visitors. Where should the developer locate to be nearest to the airport? The surprising game-theoretic answer is that all the developers should locate exactly where the natural attractions are. This answer requires at least one natural attraction at the northern tip, but does not depend on the fraction of lazy tourists or the number of developers (as long as there is more than one).

[1]  A. Cournot.  Researches into the Mathematical Principles of the Theory of Wealth , 1898, Forerunners of Realizable Values Accounting in Financial Reporting.

[2]  O. H. Brownlee,et al.  ACTIVITY ANALYSIS OF PRODUCTION AND ALLOCATION , 1952 .

[3]  Milton Friedman,et al.  Essays in Positive Economics , 1954 .

[4]  A. Tversky,et al.  Judgment under Uncertainty: Heuristics and Biases , 1974, Science.

[5]  H. Moulin.  Game theory for the social sciences , 1982 .

[6]  Ki Hang Kim.  Game theory in the social sciences , 1986 .

[7]  A. Rubinstein.  The Electronic Mail Game: Strategic Behavior Under "Almost Common Knowledge" , 1989 .

[8]  John R. Anderson,et al.  The Transfer of Cognitive Skill , 1989 .

[9]  David M. Kreps,et al.  Game Theory and Economic Modelling , 1992 .

[10]  Andrew Schotter,et al.  A LABORATORY INVESTIGATION OF MULTI-PERSON RATIONALITY AND PRESENTATION EFFECTS , 1994 .

[11]  Paul R. Milgrom,et al.  Adaptive and sophisticated learning in normal form games , 1991 .

[12]  Roger B. Myerson,et al.  Game theory - Analysis of Conflict , 1991 .

[13]  R. McKelvey,et al.  An experimental study of the centipede game , 1992 .

[14]  Rosemarie Nagel,et al.  Experimental Results on Interactive Competitive Guessing , 1993 .

[15]  Dale O. Stahl,et al.  Evolution of Smartn Players , 1993 .

[16]  Richard O. Beil,et al.  Do people rely on the self-interested maximization of others?: an experimental test , 1994 .

[17]  J. Ledyard.  Public Goods: A Survey of Experimental Research , 1994 .

[18]  D. Stahl,et al.  Experimental evidence on players' models of other players , 1994 .

[19]  J. Kagel,et al.  Learning in common value auctions: Some initial observations☆ , 1994 .

[20]  Ken Binmore,et al.  Learning to be imperfect: The ultimatum game , 1995 .

[21]  David F. Sally.  Conversation and Cooperation in Social Dilemmas , 1995 .

[22]  D. Stahl,et al.  On Players' Models of Other Players: Theory and Experimental Evidence , 1995 .

[23]  A. Roth,et al.  Learning in Extensive-Form Games: Experimental Data and Simple Dynamic Models in the Intermediate Term* , 1995 .

[24]  V. Smith,et al.  Futures Contracting and Dividend Uncertainty in Experimental Asset Markets , 1995 .

[25]  R. Thaler,et al.  Anomalies: Ultimatums, Dictators and Manners , 1995 .

[26]  Marco LiCalzi.  Fictitious Play by Cases , 1995 .

[27]  R. McKelvey,et al.  Quantal Response Equilibria for Normal Form Games , 1995 .

[28]  Teck-Hua Ho,et al.  Task complexity, equilibrium selection, and learning: an experimental study , 1996 .

[29]  D. Stahl.  Boundedly rational rule learning in a guessing game , 1996 .

[30]  John Duffy,et al.  On the Robustness of Behaviour in Experimental ‘Beauty Contest’ Games , 1997 .

[31]  D. Stahl.  Is step-j thinking an arbitrary modelling restriction or a fact of human nature? , 1998 .

[32]  R. McKelvey,et al.  Quantal Response Equilibria for Extensive Form Games , 1998 .

[33]  I. Erev,et al.  Games and Human Behavior , 1999 .

[34]  Colin Camerer,et al.  Experience‐weighted Attraction Learning in Normal Form Games , 1999 .

[35]  D. Holt.  An Empirical Model of Strategic Choice with an Application to Coordination Games , 1999 .

[36]  Xii Volume.  Keynes, John Maynard: The General Theory of Employment, Interest, and Money , 2019, Die 100 wichtigsten Werke der Ökonomie.