The α-beauty contest: Choosing numbers, thinking intervals

Abstract

We present a model for the α-beauty contest that explains common patterns in experimental data of one-shot and iterative games. The approach is based on two basic assumptions. First, players iteratively update their recent guesses. Second, players estimate intervals rather than exact numbers to cope with incomplete knowledge of other players' rationality. Under these assumptions we extend the cognitive hierarchy model of Camerer et al. [Camerer, C., Ho, T., Chong, J., 2003b. A cognitive hierarchy model of one-shot games. Quart. J. Econ. 119, 861–898]. The extended model is estimated on experimental data from a newspaper experiment.