Cognitive load and strategic sophistication

Allred, Sarah; Duffy, Sean; Smith, John · 2016 · Crossref

DOI: 10.1016/j.jebo.2016.02.006

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Summary

This paper investigates the relationship between cognitive load and strategic sophistication in game theory contexts. The authors address the challenge of isolating the effect of cognitive ability on strategic behavior, as traditional measures of cognitive ability are often correlated with unobserved traits. To overcome this, they employ a within-subject experimental design that manipulates the cognitive resources available to subjects via working memory load, thereby simulating differences in cognitive ability without confounding individual characteristics. The study involved 164 subjects who played a series of one-shot games, including ten 3x3 matrix games, a simplified "1-10" game (a variant of the 11-20 game), and a beauty contest game. Before each game, subjects were assigned either a high cognitive load (memorizing a nine-digit binary string) or a low cognitive load (memorizing a three-digit binary string). The load alternated across games to ensure each subject experienced both conditions. Subjects selected actions and, in the 3x3 games, reported beliefs about their opponents' actions. The design included mandatory rest periods between games to mitigate lasting effects of the cognitive load. The results reveal a nuanced and nonmonotonic relationship between cognitive load and strategic sophistication, driven by two competing effects: reduced computational capacity and altered perceptions of opponents' sophistication. In the relatively simple 1-10 game, high-load subjects chose lower numbers, indicating more sophisticated behavior. This suggests that high-load subjects, aware of their constrained resources, perceived their opponents as more cognitively able and adjusted their strategies accordingly. Conversely, in the more complex beauty contest game, high-load subjects chose higher numbers, indicating less sophisticated behavior. Here, the constraint on computational ability dominated, preventing subjects from calculating the optimal strategy. In the 3x3 games, high-load subjects were less sensitive to the complexity of their own dominated strategies but more sensitive to the complexity of their opponents' dominated strategies, further supporting the dual-effect hypothesis. The significance of these findings lies in their implication for models of strategic sophistication. The study provides indirect evidence that lower cognitive ability does not uniformly lead to less sophisticated behavior. Instead, the impact depends on the strategic setting: when computational demands are low, awareness of relative cognitive standing drives more sophisticated play, whereas high computational demands hinder sophistication. This challenges the assumption that cognitive ability is a straightforward predictor of strategic depth and highlights the importance of distinguishing between computational constraints and perceptual adjustments in economic decision-making.

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• mental demand