Levels of Reasoning in Keynesian Beauty Contests: A Generative Framework

Mauersberger, Felix; Nagel, Rosemarie

doi:10.1016/bs.hescom.2018.05.002

Cited by 37 publications

(20 citation statements)

References 189 publications

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“…We, therefore, separate initial behavior of experiments from observations over time. For more extensive reviews along the same line, refer to Amano et al (2014), Arifovic and Duffy (2018), Hommes (2013), and Mauersberger and Nagel (2018). Table 1 shows different parameter variations of the basic BC game together with average behavior and its variance in the initial period, game-theoretic predictions, and level k outcomes (level 0, the level k at the winning number, and modal level ks).…”

Section: Variations Of the Keynesian Beauty Contest Gamementioning

confidence: 99%

“…This section explains in some detail why standard workhorse models in macroeconomics can be considered as a BC game. Section 4.1 introduces the generalized BC game as discussed by Mauersberger and Nagel (2018). 8 Section 4.2 discusses neoclassical models of the business cycle in this context.…”

Section: Microfoundations Of Macroeconomicsmentioning

confidence: 99%

“…We define the notion of generalized Beauty Contest game following Mauersberger and Nagel (2018). While we consider the one-dimensional case where players choose among real numbers, we consider the multidimensional case (and an example thereof) in subsection 4.3.…”

Section: Generalization Of the Beauty Contest Gamementioning

confidence: 99%

“…2 Mauersberger and Nagel (2018) show how a generalized BC game (by adding a constant and an idiosyncratic shock to the discounted average) can span a wide variety of aggregative games: Cournot models, forecasting models, etc.. Benhabib et al (2015) demonstrate that this framework is a simplification of a general equilibrium model with sentiments.…”

Section: Introductionmentioning

confidence: 99%

“…There is a large experimental literature that tries to recover reasoning procedure distinguishing between the sophistication of players, e.g., through observing team reasoning. For a brief survey of such methods, seeMauersberger and Nagel (2018).…”

mentioning

confidence: 99%

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Bounded rationality in Keynesian beauty contests: a lesson for central bankers?

2020

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The great recession ( 2008) triggered an apparent discrepancy between empirical findings and macroeconomic models based on rational expectations alone. This gap led to a series of recent developments of a behavioral microfoundation of macroeconomics combined with the underlying experimental and behavioral Beauty Contest (BC) literature, which the authors review in this paper. They introduce the reader to variations of the Keynesian Beauty Contest (Keynes, The general theory of employment, interest, and money, 1936), theoretically and experimentally, demonstrating systematic patterns of out-of-equilibrium behavior. This divergence of (benchmark) solutions and bounded rationality observed in human behavior has been resolved through stepwise reasoning, the so-called level k, or cognitive hierarchy models. Furthermore, the authors show how the generalized BC function with limited parameter specifications encompasses relevant micro and macro models. Therefore, the stepwise reasoning models emerge naturally as building blocks for new behavioral macroeconomic theories to understand puzzles like the lacking rise of inflation after the financial crisis, the efficacy of quantitative easing, the forward guidance puzzle, and the effectiveness of temporary fiscal expansion.

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Section: Variations Of the Keynesian Beauty Contest Gamementioning

confidence: 99%

Section: Microfoundations Of Macroeconomicsmentioning

confidence: 99%

Section: Generalization Of the Beauty Contest Gamementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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Bounded rationality in Keynesian beauty contests: a lesson for central bankers?

2020

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Information Selection Efficiency in Networks: A Neurocognitive-Founded Agent-Based Model

Vié

2019

Network Theory and Agent-Based Modeling in Economics and Finance

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Fairness Deliberations and Fair Allocations in Symmetric and Asymmetric Bargaining–An Experimental Study on Group Decisions in Germany and China

Hennig-Schmidt,

Li,

Walkowitz

2024

Group Decis Negot

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The study’s primary focus is on examining fairness deliberations of bargainers in Germany and in China under symmetric and asymmetric bargaining power to understand whether they incorporate fairness into their decision process and, if so, how this affects bargaining outcomes. To this end, we conducted an incentivized ultimatum bargaining experiment with symmetric and asymmetric outside options. Groups (N = 142) of three persons interact as proposers and responders in dyads and decide simultaneously on their offer or which offers to accept or reject. Communication between parties is inhibited. We videotaped in-group discussions; the resulting transcripts were text analyzed by eliciting whether groups make fairness an issue, which fairness norms they discuss, and whether they use fairness-related perspective-taking to overcome the communication constraint. We find that asymmetry of bargaining power in favor of the proposer leads to lower offers relative to the symmetric situation. Not all groups make fairness an issue, and fairness deliberations alone have no significant impact on offers. However, when associated with the equal-payoff norm, and in Chinese groups in particular, discussing fairness increases offers in symmetric but also in asymmetric situations, in which other fairness norms could have been applied, too. Fairness-related perspective-taking is used by German and Chinese groups and is associated with higher offers in the former. Our study makes an epistemological and related methodological contribution: a possibly biased interpretation of bargaining outcomes can be mitigated if information on decision processes and underlying mechanisms were available.

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Levels of Reasoning in Keynesian Beauty Contests: A Generative Framework

Cited by 37 publications

References 189 publications

Bounded rationality in Keynesian beauty contests: a lesson for central bankers?

Bounded rationality in Keynesian beauty contests: a lesson for central bankers?

Information Selection Efficiency in Networks: A Neurocognitive-Founded Agent-Based Model

Fairness Deliberations and Fair Allocations in Symmetric and Asymmetric Bargaining–An Experimental Study on Group Decisions in Germany and China

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