Experimental economists are leaving the reservation. They are recruiting subjects in the field rather than in the classroom, using field goods rather than induced valuations, and using field context rather than abstract terminology in instructions. We argue that there is something methodologically fundamental behind this trend. Field experiments differ from laboratory experiments in many ways. Although it is tempting to view field experiments as simply less controlled variants of laboratory experiments, we argue that to do so would be to seriously mischaracterize them. What passes for “control ” in laboratory experiments might in fact be precisely the opposite if it is artificial to the subject or context of the task. We propose six factors that can be used to determine the field context of an experiment: the nature of the subject pool, the nature of the information that the subjects bring to the task, the nature of the commodity, the nature of the task or trading rules applied, the nature

This paper reports an experiment that elicits subjects ’ initial responses to 16 dominance-solvable two-person guessing games. The structure is publicly announced except for varying payoff parameters, to which subjects are given free access. Varying the parameters allows very strong separation of the behavior implied by leading decision rules. Subjects ’ decisions and searches show that most subjects understood the games and sought to maximize payoffs, but many had simplified models of others ’ decisions that led to systematic deviations from equilibrium. The predictable component of their deviations is well explained by a structural nonequilibrium model of initial responses based on level-k thinking. (JEL C72, C92, D83)... professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth, and higher degrees.

Who knows what I want to do? Who knows what anyone wants to do? How can you be sure about something like that? Isn't it all a question of brain chemistry, signals going back and forth, electrical energy in the cortex? How do you know whether something is really what you want to do or just some kind of nerve impulse in the brain. Some minor little activity takes place somewhere in this unimportant place in one of the brain hemispheres and suddenly I want to go to Montana or I don't want to go to Montana. (White Noise, Don DeLillo)

The amount of institutional intervention necessary to secure efficiency-enhancing cooperation in markets and organizations, in circumstances where interactions take place among essentially strangers, depends critically on the amount of information informal reputation mechanisms need transmit. Models based on subgame perfection find that the information necessary to support cooperation is recursive in nature and thus information generating and processing requirements are quite demanding. Models that do not rely on subgame perfection, on the other hand, suggest that the information demands may be quite modest. The experiment we present indicates that even without any reputation information there is a non-negligible amount of cooperation that is, however, quite sensitive to the cooperation costs. For high costs, providing information about a partner’s immediate past action increases cooperation. Recursive information about the partners’ previous partners’ reputation further promotes cooperation, regardless of the cooperation costs.

We conduct laboratory experiments on sender-receiver games with an incentive for senders to exaggerate (such as security analysts painting a rosy picture about earnings prospects). Our results show that “overcommunication”—messages are more informative of the true state than they should be, in equilibrium—is consistent with a level-k model. Eyetracking shows that senders look much more on the payoff rows corresponding to the true state, and much less at receiver payoffs than at their own payoffs. Senders ’ pupils also dilate more when their deception is larger in magnitude. Together, these data are consistent with the hypothesis that figuring out how to deceive another player is cognitively difficult as assumed in the level-k model. A combination of sender messages and lookup patterns predicts the true state about twice as often as predicted by equilibrium. Using these measures would enable receiver subjects to hypothetically earn up to 16-21 percent more than they actually do.

Because human decisions are the result of cognitive processes, theories of human behavior rest at least implicitly on assumptions about cognition. Neuroeconomics reflects the belief that using evidence on neural correlates of cognition will lead us to better theories of decisions. Gul and Pesendorfer (2005, henceforth “GP”) argue that, on the contrary, because economic

Stakeholder negotiation is an increasingly important policymaking tool. However, relatively little is understood about the relationship between the structure of the negotiating process and the effectiveness with which participating stakeholders can pursue their individual interests. In this paper, we apply the Rausser-Simon multilateral bargaining model to a specific negotiation process, involving water storage capacity and use in the upper part of the Adour Basin in south-western France. In the Rausser-Simon model, the elements of negotiation structure include: the list of participants at the bargaining table; the set of issues being negotiated; the decision rule; political weights (“access”); and the nature of the outcome if agreement cannot be reached. The richness of the data and institutional information available to us provides a realistic environment in which to examine the effect of negotiation structure on participant power. We focus in particular on

Behavioral game theory experiments consistently reveal that individuals deviate from theoretically optimal (Nash equilibrium) strategies even in simple games. The α-beauty contest is among the simplest games that elicit such non-optimal behavior; accordingly, there is substantial interest in formally characterizing the observed play for this game. Contributing to such an effort, and building on earlier work by Stahl and Wilson (1995, 1994) and Nagel (1995), Camerer et al. (2004) introduce an intuitively appealing and formally elegant cognitive hierarchy (CH) model of strategic reasoning. Under their model the player population is partitioned according to a Poisson distribution (CH-P) and the resulting subgroups are hierarchically ordered in terms of how many steps of iterated reasoning they perform when strategizing. Though the analytic properties of this model provide easily interpretable parameters, we are able to show that the data do not strongly support such a model, at least in the case of the α-beauty contest. In fact, we find no evidence of cognitive hierarchy structure at all. We arrive at this result by developing a rigorous testing methodology consisting of three key components. First, we generalize CH-P by developing a flexible semiparametric (SP) CH model which nests many common CH variants. Second, we describe an experiment to collect data specifically tailored to test key assumptions of the CH framework. Finally, we describe an appropriate null model against which to evaluate the ability of CH models to characterize our experimental data. Some key words: behavioral game theory, cognitive hierarchy models, model assessment, bounded rationality. 2 1

Abstract. Understanding more about how the brain functions should help us understand economic behaviour. But some would have us believe that it has done this already, and that insights from neuroscience have already provided insights in economics that we would not otherwise have. Much of this is just academic marketing hype, and to get down to substantive issues we need to identify that fluff for what it is. After we clear away the distractions, what is left? The answer is that a lot is left, but it is still all potential. That is not a bad thing, or a reason to stop the effort, but it does point to the need for a serious reconsideration of what neuroeconomics is and what passes for explanation in this literature. I argue that neuroeconomics can be a valuable field, but not the way it is being developed and “sold ” now. The same is true more generally of behavioural economics, which shares

www.elsevier.com/locate/geb Self-referential thinking and equilibrium as states of mind in games: fMRI evidence ✩