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How Cognitive Skills Affect Strategic Behavior: Cognitive Ability, Fluid Intelligence and Judgment

Author

Listed:
  • Gill, David

    (Purdue University)

  • Knepper, Zachary

    (Purdue University)

  • Prowse, Victoria L.

    (Purdue University)

  • Zhou, Junya

    (University of Texas at Dallas)

Abstract

We explore the influence of cognitive ability and judgment on strategic behavior in the beauty contest game (where the Nash equilibrium action is zero). Using the level-k model of bounded rationality, cognitive ability and judgment both predict higher level strategic thinking. However, individuals with better judgment choose zero less frequently, and we uncover a novel dynamic mechanism that sheds light on this pattern. Taken together, our results indicate that fluid (i.e., analytical) intelligence is a primary driver of strategic level-k thinking, while facets of judgment that are distinct from fluid intelligence drive the lower inclination of high judgment individuals to choose zero.

Suggested Citation

  • Gill, David & Knepper, Zachary & Prowse, Victoria L. & Zhou, Junya, 2024. "How Cognitive Skills Affect Strategic Behavior: Cognitive Ability, Fluid Intelligence and Judgment," IZA Discussion Papers 17168, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17168
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    More about this item

    Keywords

    cognitive ability; judgment; fluid intelligence; matrix reasoning; beauty contest; strategic sophistication; level-k; experiment; game theory;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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