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How Cognitive Skills Affect Strategic Behavior: Cognitive Ability, Fluid Intelligence and Judgment

David Gill, Zachary Knepper, Victoria Prowse and Junya Zhou
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David Gill: Department of Economics, Purdue University
Zachary Knepper: Department of Economics, Purdue University
Junya Zhou: Department of Economics, Purdue University

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: We explore the influence of cognitive ability and judgment on strategic behavior in the beauty contest game. Using the level-k model of bounded rationality, cognitive ability and judgment both predict higher level strategic thinking. However, individuals with better judgment choose the Nash equilibrium action less frequently, and we uncover a novel dynamic mechanism that sheds light on this pattern. Taken together, our results indicate that fluid (i.e., analytical) intelligence is a primary driver of strategic level-k thinking, while facets of judgment that are distinct from fluid intelligence drive the lower inclination of high judgment individuals to choose the equilibrium action.

Keywords: cognitive ability; judgment; fluid intelligence; matrix reasoning; beauty contest; strategic sophistication; level-k; experiment; game theory JEL Classification: C92; C72; D91 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp, nep-gth and nep-neu
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