Adoption and Abandonment of Decision-Making Principles: Evidence from Cournot Experiments

Peiran Jiao*, Heinrich Nax

*Corresponding author for this work

Research output: Working paper / PreprintWorking paper

Abstract

We conducted a controlled laboratory experiment to understand how and what kind of information triggers adoption and abandonment of different decision-making principles in games. We consider three types of decision-making principles: best-response, payoff-based learning, and imitation. Our focus is on Cournot contests, where Nash equilibrium is located between social optimum and social pessimum. Subjects start in a low-information environment, where only payoff-based learning is feasible, and end up with full information, where all types of decision-making rules apply. Treatments vary with respect to the order with which information is revealed as the game is repeated. Our study is designed to address three main questions. (1) The 'marginal' effect of information: Which new bits of information trigger which principle? (2) The 'additive' effect: How does the history of previously available information affect (1)? (3) The 'substitution' effect: How are decision-making principles abandoned and adopted? Thus, we establish a novel link from micro-heuristics to various resulting macro-dynamics of play, which converge either toward Nash equilibrium or toward a socially inferior zero-profit outcome.
Original languageEnglish
PublisherSSRN
DOIs
Publication statusPublished - 2017

JEL classifications

  • c72 - Noncooperative Games
  • c92 - Design of Experiments: Laboratory, Group Behavior
  • d83 - "Search; Learning; Information and Knowledge; Communication; Belief"

Keywords

  • learning
  • imitation
  • best-response
  • information
  • Cournot Competition
  • Heuristics
  • cooperation

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