Abstract

This paper focuses on the process of expectation formation. Specifically, the question is addressed whether individuals think strategically when they form beliefs about other players' behavior. Most belief learning models assume that people abstract from strategic considerations. Using an incentive compatible mechanism, experimental data are o btained on subjects' expectations in a step-level public good game and in a game against nature. Beliefs in the interactive games develop in the same way as in the game against nature, providing evidence that strategic considerations do not play a role. The evidence is consistent with predictions derived from the naive Bayesian model.

Citations