An Experimental Test Of Taylor-Type Rules With Inexperienced Central Bankers

We experimentally test whether a class of monetary policy decision rules describes decision making in a population of inexperienced central bankers. In our experiments, subjects repeatedly set the short-term interest rate for a computer economy with inflation as their target. A large majority of subjects learn to successfully control inflation. We find that Taylor-type rules fit the choice data well, and are instrumental in characterizing heterogeneity in decision making. Our experiment is the first to begin to organize data experimentally with an eye on monetary policy rules for this, one of the most widely watched and analyzed decisions in economics.monetary policy, Taylor rule, experimental economics, repeated games

The Influence of Social Dependencies on Decision-Making: Initial Investigations with a New Game

This paper describes a new multi-player computer game, Colored Trails (CT), which may be played by people, computers and heterogeneous groups. CT was designed to enable investigation of properties of decision-making strategies in multi-agent situations of varying complexity. The paper presents the results of an initial series of experiments of CT games in which agents' choices affected not only their own outcomes but also the outcomes of other agents. It compares the behavior of people with that of computer agents deploying a variety of decision-making strategies. The results align with behavioral economics studies in showing that people cooperate when they play and that factors of social dependency influence their levels of cooperation. Preliminary results indicate that people design agents to play strategies closer to game-theory predictions, yielding lower utility. Additional experiments show that such agents perform worse than agents designed to make choices that resemble human cooperative behavior. The paper describes challenges raised by these results for designers of agents, especially agents that need to operate in heterogeneous groups that include people.Engineering and Applied Science

Three essays on bounded rationality and individual learning in repeated games

This thesis is composed of three chapters, which can be read independentlyIn the first chapter, we revisit the El Farol bar problem developed by Brian W. Arthur (1994) to investigate how one might best model bounded rationality in economics. We begin by modelling the El Farol bar problem as a market entry game and describing its Nash equilibria. Then, assuming agents are boundedly rational in accordance with a reinforcement learning model, we analyse long-run behaviour in the repeated game. We then state our main result. In a single population of individuals playing the El Farol game, reinforcement learning predicts that the population is eventually subdivided into two distinct groups: those who invariably go to the bar and those who almost never do. In doing so we demonstrate that reinforcement learning predicts sorting in the El Farol bar problem.The second chapter considers the long-run behaviour of agents learning in finite population games with random matching. In particular we study finite population games composed of anti-coordination pair games. We find the set of conditions for the payoff matrix of the two-player pair game that ensures the existence of strict pure strategy equilibria in the finite population game. Furthermore, we suggest that if the population is sufficiently large and the two-player pair games meet certain criteria, then the long-run behaviour of individuals, learning in accordance with the Erev and Roth (1998) reinforcement model, asymptotically converges to pure strategy profiles of the population game. These are equilibria where all individual agents play pure strategies, while in aggregate the frequencies of pure strategies played in the population mimic the mixed strategy equilibrium in the pair game. In addition we gather further evidence through computer simulations.The third chapter investigates some of the theoretical predictions of learning theory in anti-coordination finite population games with random matching through laboratory experiments in economics. Previous data from experiments on anticoordination games has focused on aggregate behaviour and has evidenced that outcomes mimic the mixed strategy equilibrium. Here we show that in finite population anti-coordination games, reinforcement learning predicts sorting; that is, in the long-run, agents play pure strategy equilibria where subsets of the population permanently play each available action

Rage Against the Machines: How Subjects Learn to Play Against Computers

We use an experiment to explore how subjects learn to play against computers which are programmed to follow one of a number of standard learning algorithms. The learning theories are (unbeknown to subjects) a best response process, fictitious play, imitation, reinforcement learning, and a trial & error process. We test whether subjects try to influence those algorithms to their advantage in a forward-looking way (strategic teaching). We find that strategic teaching occurs frequently and that all learning algorithms are subject to exploitation with the notable exception of imitation. The experiment was conducted, both, on the internet and in the usual laboratory setting. We find some systematic differences, which however can be traced to the different incentives structures rather than the experimental environment

The Online Laboratory: Conducting Experiments in a Real Labor Market

Online labor markets have great potential as platforms for conducting experiments, as they provide immediate access to a large and diverse subject pool and allow researchers to conduct randomized controlled trials. We argue that online experiments can be just as valid---both internally and externally---as laboratory and field experiments, while requiring far less money and time to design and to conduct. In this paper, we first describe the benefits of conducting experiments in online labor markets; we then use one such market to replicate three classic experiments and confirm their results. We confirm that subjects (1) reverse decisions in response to how a decision-problem is framed, (2) have pro-social preferences (value payoffs to others positively), and (3) respond to priming by altering their choices. We also conduct a labor supply field experiment in which we confirm that workers have upward sloping labor supply curves. In addition to reporting these results, we discuss the unique threats to validity in an online setting and propose methods for coping with these threats. We also discuss the external validity of results from online domains and explain why online results can have external validity equal to or even better than that of traditional methods, depending on the research question. We conclude with our views on the potential role that online experiments can play within the social sciences, and then recommend software development priorities and best practices

Classroom games in economics : a quantitative assessment of the 'beer game'

Using an experiment, I compare the use of the 'Beer Distribution' classroom game with the more traditional 'chalk and talk' approach to teach students about inventories and the macroeconomy. My empirical results confirm and extend our understanding of the relative strengths and weaknesses of the use of classroom games: the game tends to improve interest and motivation on average, though some students dislike their use; the game is effective at driving home its key messages, but it may wrongly lead students to disregard other important factors; the game is inferior where facts mastery or de nitional learning is required. Rather than an endorsement or a criticism of classroom games, the conclusion is cautionary advice on how to best make use of games within an overall course

What Drives People's Choices in Turn-Taking Games, if not Game-Theoretic Rationality?

In an earlier experiment, participants played a perfect information game against a computer, which was programmed to deviate often from its backward induction strategy right at the beginning of the game. Participants knew that in each game, the computer was nevertheless optimizing against some belief about the participant's future strategy. In the aggregate, it appeared that participants applied forward induction. However, cardinal effects seemed to play a role as well: a number of participants might have been trying to maximize expected utility. In order to find out how people really reason in such a game, we designed centipede-like turn-taking games with new payoff structures in order to make such cardinal effects less likely. We ran a new experiment with 50 participants, based on marble drop visualizations of these revised payoff structures. After participants played 48 test games, we asked a number of questions to gauge the participants' reasoning about their own and the opponent's strategy at all decision nodes of a sample game. We also checked how the verbalized strategies fit to the actual choices they made at all their decision points in the 48 test games. Even though in the aggregate, participants in the new experiment still tend to slightly favor the forward induction choice at their first decision node, their verbalized strategies most often depend on their own attitudes towards risk and those they assign to the computer opponent, sometimes in addition to considerations about cooperativeness and competitiveness.Comment: In Proceedings TARK 2017, arXiv:1707.0825

Cycle frequency in standard Rock-Paper-Scissors games: Evidence from experimental economics

The Rock-Paper-Scissors (RPS) game is a widely used model system in game theory. Evolutionary game theory predicts the existence of persistent cycles in the evolutionary trajectories of the RPS game, but experimental evidence has remained to be rather weak. In this work we performed laboratory experiments on the RPS game and analyzed the social-state evolutionary trajectories of twelve populations of N=6 players. We found strong evidence supporting the existence of persistent cycles. The mean cycling frequency was measured to be $0.029 \pm 0.009$ period per experimental round. Our experimental observations can be quantitatively explained by a simple non-equilibrium model, namely the discrete-time logit dynamical process with a noise parameter. Our work therefore favors the evolutionary game theory over the classical game theory for describing the dynamical behavior of the RPS game.Comment: 7 Page, 3 figure; Keyword: Rock-Paper-Scissors game; cycle; social state; population dynamics; evolutionary trajector

Thinking about Attention in Games: Backward and Forward Induction

Behavioral economics improves economic analysis by using psychological regularity to suggest limits on rationality and self-interest (e.g. Camerer and Loewenstein 2003). Expressing these regularities in formal terms permits productive theorizing, suggests new experiments, can contribute to psychology, and can be used to shape economic policies which make normal people better off

Nashbots: How Political Scientists have Underestimated Human Rationality, and How to Fix It

Political scientists use experiments to test the predictions of game-theoretic models. In a typical experiment, each subject makes choices that determine her own earnings and the earnings of other subjects, with payments corresponding to the utility payoffs of a theoretical game. But social preferences distort the correspondence between a subject’s cash earnings and her subjective utility, and since social preferences vary, anonymously matched subjects cannot know their opponents’ preferences between outcomes, turning many laboratory tasks into games of incomplete information. We reduce the distortion of social preferences by pitting subjects against algorithmic agents (“Nashbots”). Across 11 experimental tasks, subjects facing human opponents played rationally only 36% of the time, but those facing algorithmic agents did so 60% of the time. We conclude that experimentalists have underestimated the economic rationality of laboratory subjects by designing tasks that are poor analogies to the games they purport to test