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The Beauty Contest

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The Beauty Contest Powered By Docstoc
					The Beauty Contest


      Discussion
Mental Models
 Model 1: More is better (n = 6)
   Everyone chooses 100, therefore, choose 66
 Model 2: People are Robots (n = 9)
   Everyone chooses at random, therefore choose 2/3 of
    50
 Model 3: People are best responding to robots (n =
  13)
      Everyone thinks others are robots, therefore average =
       2/3 of 50; hence I should choose 2/3 x 2/3 x 50
 Model 4: People are very smart (n = 20)
   Everyone sorts this process out and chooses a really
    low number.
 Model 5: Lucky numbers, palmistry, etc. (n = 8)
          Actual Distribution
          .08
          .06




                                                           Average = 22
Density


          .04




                                                           Winner = 15
          .02
                0




                    0   20   40            60   80   100
                                  Choice
Take Aways
 A “recipe” for strategy
1. Construct a mental model of rivals
2. Determine “best response” to mental model
3. Reality check: Given my calculations, is my
   mental model likely to be correct?
  1.   How sensitive is my strategy to the mental
       model?
  2.   How wrong can I afford to be in my
       assessments without changing my strategy?

				
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posted:10/24/2012
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