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An Experiment on a Multi-Period Beauty Contest Game

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  • Nobuyuki Hanaki
  • Yuta Takahashi

Abstract

We present and conduct a novel experiment on a multi-period beauty contest game. Leveraging the new multi-period feature, we propose a new methodology to test the forward-lookingness of expectations and explore how expectations are formed in our dynamic environment. By studying how expectations are revised over time, we provide new evidence for forward-looking expectation formation. Moreover, we uncover a new effect of strategic environment: only when the game exhibits strategic complementarity do participants use extrapolation and expect increasingly higher prices in the future. This finding implies that the mode of expectation formation is endogenous to the economic environment of the participants.

Suggested Citation

  • Nobuyuki Hanaki & Yuta Takahashi, 2023. "An Experiment on a Multi-Period Beauty Contest Game," ISER Discussion Paper 1213rr, Institute of Social and Economic Research, Osaka University, revised Dec 2024.
    • Handle: RePEc:dpr:wpaper:1213rr
    as

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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2023/DP1213RR.pdf
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    References listed on IDEAS

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    4. Cooper, Kristen & Schneider, Henry & Waldman, Michael, 2021. "Limited rationality and the strategic environment: Further evidence from a pricing game," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).
    5. Smith, Vernon L & Suchanek, Gerry L & Williams, Arlington W, 1988. "Bubbles, Crashes, and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, Econometric Society, vol. 56(5), pages 1119-1151, September.
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