Incentives and Strategic Behaviour: An Experiment

Teresa Esteban Casanelles and Gonçalves, Duarte

No 21338, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: How do incentive levels affect strategic behaviour? We address this question with an experiment that separately identifies own- and opponent-incentive effects in two dominance-solvable games that differ in strategic complexity. Higher own incentives favour more strategically sophisticated actions and increase best responding to stated beliefs. Beliefs shift in a parallel direction and participants expect more sophisticated opponent actions. Furthermore, while higher own incentives increase belief accuracy, opponents with higher incentives are harder to predict. Higher incentives also increase response times, and longer response times are associated with better performance and more sophisticated actions and beliefs. Taken together, the evidence suggests that incentives affect strategic behaviour through two main channels: by reducing payoff-dependent mistakes and by increasing the effort devoted to reasoning, with the returns to that effort shaped by strategic complexity of the environment.

Keywords: Incentives; Belief formation; Behavioural game theory; Response time (search for similar items in EconPapers)
JEL-codes: C72 C92 D83 D84 D91 (search for similar items in EconPapers)
Date: 2026-03
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