The Effect of Incentives on Beliefs and Choices in Games: An Experiment by Teresa Esteban Casanelles

Join us for this week's event in the Behavioural, Experimental and Development Economics Seminar Series, Autumn Term 2024

Join Teresa Esteban Casanelles, from King’s College London, as they present research on the Effect of Incentives on Beliefs and Choices in Games: An Experiment.

Abstract

How and why do incentive levels affect strategic behavior? This paper examines an experiment designed to identify the causal effect of scaling up incentives on choices and beliefs in strategic settings by holding fixed opponents’ actions. In dominance-solvable games, higher incentives increase action sophistication and best-response rates and decrease mistake propensity. Beliefs tend to become more accurate with higher own incentives in simple games. However, opponents with higher incentive levels are harder to predict: while beliefs track opponents’ behavior when they have higher incentive levels, beliefs about opponents also become more biased. We provide evidence that incentives affect cognitive effort and that greater effort increases performance and predicts choice and belief sophistication. Overall, the data lends support to combining both payoff-dependent mistakes and costly reasoning.

This seminar will be held in the Economics Common Room on Wednesday 27 November, at 11.00am. This event is open to all levels of study and is also open to the public. To register your place, please contact the seminar organisers.

This event is part of the Behavioural, Experimental, and Development Economics Research Seminar Series.