1. The Beauty Contest Discussion

2. 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)

3. Actual Distribution Average = 22 Winner = 15

4. 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?