Cognitive load and strategic sophistication

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Allred, Sarah ; Duffy, Sean ; Smith, John (2014)
  • Subject: C72 - Noncooperative Games | bounded rationality, experimental economics, working memory load, cognition, strategic sophistication, rational inattention | C91 - Laboratory, Individual Behavior | bounded rationality; experimental economics; working memory load; beauty contest; strategic sophistication; rational inattention
    • jel: jel:C91 | jel:C72

We study the relationship between the cognitive load manipulation and strategic sophistication. The cognitive load manipulation is designed to reduce the subject's cognitive resources that are available for deliberation on a choice. In our experiment, subjects are placed under a large cognitive load (given a difficult number to remember) or a low cognitive load (given a number which is not difficult to remember). Subsequently, the subjects play a one-shot game then they are asked to recall the number. This procedure is repeated for various games, where a new number is given for each game. We find a nuanced and nonmonotonic relationship between cognitive load and strategic sophistication. This relationship is consistent with two effects. First, subjects under a high cognitive load tend to exhibit behavior consistent with the reduced ability to compute the optimal decision. Second, the cognitive load tends to affect the subject's perception of their relative standing in the distribution of the available cognitive resources. The net result of these two effects depends on the strategic setting. Our experiment provides evidence on the literature which examines the relationship between measures of cognitive ability and strategic sophistication.
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