We report results of experiments designed to test the predictions of the best reply process. In a Cournot oligopoly with four firms, the best reply process should theoretically explode if demand and cost functions are linear. We find, however, no experimental evidence of such instability....

It is shown that a win-stay, lose-hift behavior rule with endogenous aspiration levels yields cooperation in a certain class of games. The aspiration level in each round equals the current population average. The class of games includes the prisoner's dilemma and Cournot oligopoly and thus...

Recently there has been much theoretical and experimental work on learning in games. However, learning usually means "learning about the strategic behavior of opponents" rather than "learning about the game" as such. In contrast, here we report on an experiment designed to test whether players...

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...

The endowment effect describes the fact that people demand much more to give up an object than they are willing to spend to acquire it. The existence of this effect has been documented in numerous experiments. We attempt to explain this effect by showing that evolution favors individuals whose...

Most real world situations which are susceptible to herding are also characterized by direct payoff externalities. Yet, the bulk of the theoretical and experimental literature focuses on pure informational externalities. In this paper we study several different forms of payoff externalities that...

In this note we study a very simple trial & error learning process in the context of a Cournot oligopoly. Without any knowledge of the payoff functions players increase, respectively decrease, their quantity by one unit as long as this leads to higher profits. We show that despite the absence of...

We report results of an internet experiment designed to test the theory of informational cascades in financial markets (Avery and Zemsky, AER, 1998). More than 6000 subjects, including a subsample of 267 consultants from an international consulting firm, participated in the experiment. As...

This paper investigates various theories explaining banks' overbidding in the fixed rate tenders of the European Central Bank (ECB). Using auction data from both the Bundesbank and the ECB, we show that none of the theories can on its own explain the observed overbidding. This implies that the...

In John Nash’s proofs for the existence of (Nash) equilibria based on Brouwer’s theorem, an iteration mapping is used. A continuous—time analogue of the same mapping has been studied even earlier by Brown and von Neumann. This differential equation has recently been suggested as a...