Navigating a Nonlinear Environment: An Experimental Study of Decision Making in a Chaotic Setting

Diana Richards and Jude Hays

Research in Economics from Santa Fe Institute

Abstract: There is increasing evidence that collective behavior, such as social choice, price dynamics, and strategic behavior, is related to nonlinear dynamics and thus has the potential for instability and complex behavior. This paper presents experimental results where subjects are placed in a nonlinear game setting with the potential for chaotic dynamics in best-responses. We explore what behavior emerges from the nonlinear environment, how players make choices in this complex environment, and what strategies are most successful. We find an assortment of dynamic play in players' choices, ranging from an emergent leader-follower equilibrium to "choice" dynamics. We also find that players who most successfully navigated the complex decision environment, achieving the highest payoffs, were those who relied on an incremental search strategy. Strategies that responded too severely to previous outcomes led to unstable swings in the nonlinear environment, which made effective search and response more difficult.

Keywords: strategic choice; nonlinearity; learning; incrementalism (search for similar items in EconPapers)
Date: 1997-05
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