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Can market selection reduce anomalous behaviour in games?

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  • Choo, Lawrence
  • Zhou, Xiaoyu

Abstract

We use an experiment to study whether market selection can reduce anomalous behaviour in games. In different treatments, we employ two alternative mechanisms, the random mechanism and the auction mechanism, to allocate the participation rights to the red hat puzzle game, a well-known logical reasoning problem. Compared to the random mechanism, the auction mechanism significantly reduces deviations from the equilibrium play in the red hat puzzle game. Our findings show that under carefully designed incentives, market competition can indeed reduce anomalous behaviour in games.

Suggested Citation

  • Choo, Lawrence & Zhou, Xiaoyu, 2022. "Can market selection reduce anomalous behaviour in games?," European Economic Review, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:eecrev:v:141:y:2022:i:c:s0014292121002464
    DOI: 10.1016/j.euroecorev.2021.103958
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    Cited by:

    1. Po-Hsuan Lin, 2022. "Cognitive Hierarchies in Multi-Stage Games of Incomplete Information: Theory and Experiment," Papers 2208.11190, arXiv.org, revised Nov 2023.

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    More about this item

    Keywords

    Market competition; Market selection; Auctions; Bounded-rationality; Red hat puzzle;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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