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GAME THEORY FOR PLAYING GAMES: SOPHISTICATION IN A NEGATIVE-EXTERNALITY EXPERIMENT

Authors

  • JOHN M. SPRAGGON,

    1. Spraggon: Associate Professor, Department of Resource Economics, University of Massachusetts Amherst, 80 Campus Center Way, Amherst, MA 01003. Phone 413-545-6651, Fax 413-545-5853, E-mail jmspragg@resecon.umass.edu
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      The authors thank Bill Morrison for his comments and suggestions and Emily Birtwell and Kendra McLeish for valuable research assistance. J.M.S. acknowledges financial support from the Social Science and Humanities Research Council of Canada. R.J.O. acknowledges financial support from the W. E. Upjohn Institute for Employment Research and the Institute for Advanced Policy Research (University of Calgary).

  • ROBERT J. OXOBY

    1. Oxoby: Associate Professor, Department of Economics, University of Calgary, 2500 University Drive NW, Calgary, AB, Canada T2N 1N4. Phone 403-220-2586, Fax 403-282-5262, E-mail oxoby@ucalgary.ca
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      The authors thank Bill Morrison for his comments and suggestions and Emily Birtwell and Kendra McLeish for valuable research assistance. J.M.S. acknowledges financial support from the Social Science and Humanities Research Council of Canada. R.J.O. acknowledges financial support from the W. E. Upjohn Institute for Employment Research and the Institute for Advanced Policy Research (University of Calgary).


Abstract

We explore the extent to which the lack of Nash payoff maximization in experimental games is attributable to the “sophistication” of participants (i.e., their understanding of strategic decision making and profit-maximizing decisions). To this end, we compare the behaviors of sophisticated participants (i.e., those who have been exposed to the concepts of game theory) against those of a more standard subject pool in a moral hazard environment. Results suggest that sophisticated subjects are significantly more likely to adopt strategies predicted by standard theory and arrive at a Nash equilibrium. (JEL C72, C91, C92, D63, D64)

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