On Cognitive Ability and Learning in a Beauty Contest

We reinvestigate a version of the beauty contest originally developed by Keynes (1936) with a focus on cognitive reflection. Using a sample of 166 undergraduate students at a regional university in Florida, we confirm previous research by Burnham et al. (2009) that cognitive reflection, as measured by Frederick's (2005) cognitive reflection test, matters in the first round of the game; players with a higher CRT score pick significantly lower numbers, and their responses cluster more. Unlike previous research, however, we find that cognitive ability is important only when faced with a new situation. In subsequent rounds of the game, cognitive ability is subordinate to a learning effect and players' responses and the variability of responses are not significantly related to CRT scores. This finding is important in financial markets, since it implies that anticipating the decisions and actions of other players is a function of experience, not necessarily cognitive ability.beauty contest, cognitive reflection test, cognitive ability, CRT

Overconfidence in salary expectations after graduation

We investigate the degree of overconfidence in earnings percentile expectations one year, five years, and ten years after graduation. The results reveal extreme overconfidence in the expected earnings percentile five years and ten years after graduation. This overconfidence is only marginally explained by various demographic variables, including gender, marital status, socioeconomic status, GPA, and the perceived difficulty in finding a job after graduation. A subsample of “highly motivated” finance students expects to earn less than regular students one and five years after graduation, but is more overconfident about its increasing earnings potential over time. The findings reported here are useful in managing graduates’ expectations as they enter the workforce