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Hypothetical Thinking and Information Extraction in the Laboratory †

Hypothetical Thinking and Information Extraction in the Laboratory † Abstract In several common-value environments (e.g., auctions or elections), players should make informational inferences from opponents' strategies under certain hypothetical events (e.g., winning the auction or being pivotal). We design a voting experiment that identifies whether subjects make these inferences and distinguishes between hypothetical thinking and information extraction. Depending on feedback, between 50 and 80 percent of subjects behave nonoptimally. More importantly, these mistakes are driven by difficulty in extracting information from hypothetical, but not from actual, events. Mistakes are robust to experience and hints, and also arise in more general settings where players have no private information. (JEL C91, D71, D72, D82, D83 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Hypothetical Thinking and Information Extraction in the Laboratory †

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Publisher
American Economic Association
Copyright
Copyright © 2014 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.6.4.180
Publisher site
See Article on Publisher Site

Abstract

Abstract In several common-value environments (e.g., auctions or elections), players should make informational inferences from opponents' strategies under certain hypothetical events (e.g., winning the auction or being pivotal). We design a voting experiment that identifies whether subjects make these inferences and distinguishes between hypothetical thinking and information extraction. Depending on feedback, between 50 and 80 percent of subjects behave nonoptimally. More importantly, these mistakes are driven by difficulty in extracting information from hypothetical, but not from actual, events. Mistakes are robust to experience and hints, and also arise in more general settings where players have no private information. (JEL C91, D71, D72, D82, D83 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2014

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