Playing the game the others want to play: Keynes’ beauty contest revisited

Camille Cornand and Rodolphe Dos Santos Ferreira

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: In Keynes’ beauty contest, agents have to choose actions in accordance with an expected fundamental value and with the conventional value expected to be set by the market. In doing so, agents respond to a fundamental and to a coordination motive respectively, the prevalence of either motive being set exogenously. Our contribution is to consider whether agents favor the fundamental or the coordination motive as the result of a strategic choice that generates a strong strategic complementarity of agents’ actions. We show that the coordination motive tends to prevail over the fundamental one, which yields a disconnection of activity away from the fundamental. A valuation game and a competition game are provided as illustrations of this general Framework.

Keywords: beauty contest; financial markets; indeterminacy; oligopolistic competition; strategic complementarities. (search for similar items in EconPapers)
JEL-codes: D84 E12 E44 L13 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-gth, nep-hpe, nep-mac and nep-pke
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Related works:
Working Paper: Playing the game the others want to play: Keynes’ beauty contest revisited (2017)
Working Paper: Playing the game the others want to play: Keynes’ beauty contest revisited (2016)
Working Paper: Playing the Game the others want to play: Keynes’ beauty contest revisited (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2015-01

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