Consider the guessing game where people are choosing numbers between 0 and 100. The aim is to come as close as possible to (2/3) of the average number chosen in the group. Suppose all participants in this game are fully rational and able to think through all stages of iterated thinking. You would then expect choices to cluster around:
A) 0.
B) 100.
C) 50.
D) 25.

Question

Quizplus · Accepted Answer

Rational players will iteratively adjust their guesses towards 0, understanding that others will also lower their guesses to try to be closest to (2/3) of the average. This process of iterated elimination of dominated strategies leads to 0 being the rational choice.

Consider the Guessing Game Where People Are Choosing Numbers Between