IZA DP No. 4732: Strategic Sophistication of Individuals and Teams in Experimental Normal-Form Games
revised version published as 'Strategic sophistication of individuals and teams. Experimental evidence' in: European Economic Review, 2013, 64, 395-410
We present an experiment on strategic thinking and behavior of individuals and teams in one-shot normal-form games. Besides making choices, decision makers have to state their first- and second-order beliefs. We find that teams play the Nash strategy significantly more often, and their choices are more often consistent by being a best reply to first order beliefs. We identify the complexity of a game and the payoffs in equilibrium as determining the likelihood of consistent behavior according to textbook rationality. Using a mixture model, the estimated probability to play strategically is 62% for teams, but only 40% for individuals.