Abstract
Dominance solvability is one of the most straightforward solution concepts in game theory. It is based on two principles: dominance (according to which players always use their dominant strategy) and iterated dominance (according to which players always act as if others apply the principle of dominance). However, existing experimental evidence questions the empirical accuracy of dominance solvability. In this study, we study the relationships between the key facets of dominance solvability and two cognitive skills, cognitive reflection, and fluid intelligence. We provide evidence that the behaviors in accordance with dominance and one-step iterated dominance are both predicted by one's fluid intelligence rather than cognitive reflection. Individual cognitive skills, however, only explain a small fraction of the observed failure of dominance solvability. The accuracy of theoretical predictions on strategic decision making thus not only depends on individual cognitive characteristics, but also, perhaps more importantly, on the decision making environment itself.
Highlights
Consider a game in which every decision maker is faced with a finite set of choices such that one specific choice always brings him higher monetary payoff than other choices, irrespective of the choices made by other players
We find that Raven’s test score is a more reliable predictor of strategic behavior than CRT score: whenever the latter predicts behavior, the former does too, but not vice versa
This paper studies the relationship between strategic behavior and cognitive skills—cognitive reflection and fluid intelligence— in a classic 2 × 2 dominance-solvable game
Summary
Consider a game in which every decision maker is faced with a finite set of choices such that one specific choice always brings him higher monetary payoff than other choices, irrespective of the choices made by other players. The straightforward response of a decision maker who cares about his monetary payoff is to disregard dominated actions—i.e., actions that may only deteriorate payoff relative to other actions. This dominance principle is the most basic solution concept of game theory (Camerer, 2003). In an important class of games—known as dominance-solvable games—this iterated elimination of dominated strategies leads to a unique solution
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