Transcript The Beauty Contest - Faculty Directory | Berkeley-Haas

The Beauty Contest
Discussion
Mental Models
 Model 1: More is better (n = 6)
 Everyone chooses 100, therefore, choose 66
 Model 2: People are Robots (n = 9)
 Everyone chooses at random, therefore choose 2/3 of
50
 Model 3: People are best responding to robots (n =
13)

Everyone thinks others are robots, therefore average =
2/3 of 50; hence I should choose 2/3 x 2/3 x 50
 Model 4: People are very smart (n = 20)
 Everyone sorts this process out and chooses a really
low number.
 Model 5: Lucky numbers, palmistry, etc. (n = 8)
.04
Average = 22
Winner = 15
0
.02
Density
.06
.08
Actual Distribution
0
20
40
60
Choice
80
100
Take Aways
 A “recipe” for strategy
1. Construct a mental model of rivals
2. Determine “best response” to mental model
3. Reality check: Given my calculations, is my
mental model likely to be correct?
1.
2.
How sensitive is my strategy to the mental
model?
How wrong can I afford to be in my
assessments without changing my strategy?