CEOs playing games

Experimental economics is incredibly useful, because it allows economists to study decision-making in circumstances when basically all of the key parameters to the decision are controlled. However, one of the main problems with experimental economics is that the study population is often made up of students (see here and here for previous posts on this topic). So, it's particularly interesting when experimental economics makes us of samples made up of 'real people'.

For instance, in a new article (open access) published in the journal Experimental Economics, Håkan Holm (Lund University), Victor Nee (Cornell University), and Sonja Opper (Lund University), report on an experiment they conducted with Chinese CEOs and "comparable people in professional roles". Their sample size is quite large for this type of study - they have 200 CEOs and 200 other professionals.

Their experiment involves game theory - essentially, the research participants were asked to choose actions in three games: (1) the prisoners' dilemma (which I have written about before, most recently here); (2) a 'battle of the sexes' coordination game (I have written about coordination games too, see for example here); and (3) a chicken game (which I have also written about before, see here). They also asked the research participants about their beliefs about what the other research participants would choose.

Now, you might be thinking that CEOs have good strategic minds, and so they should be able to do well in game theoretic settings. You might also think that CEOs would be more selfish and more aggressive in these games. In those two hypotheses, you would only be partly correct. Holm et al. find that:

...substantial differences in behavior between the CEOs and the control group, but not in the way many would expect. The CEOs were not in general closer to the Nash equilibrium prediction (assuming selfish preferences). On the contrary, the average control group behavior was closer to the Nash equilibrium in the majority of the games and did not best respond less frequently to their beliefs. The most striking and consistent pattern was that the CEOs had higher expected earnings than the comparison group in all the games. The CEOs cooperated more and played less hawkishly compared to the control group, no matter how the game was framed (abstractly or with a narrative). Compared to the control group the CEOs’ also had significantly higher average beliefs that others would cooperate in the Prisoner’s Dilemma.

More specifically, the CEOs were between 13 and 25 percentage points more likely to choose the cooperative (prisoners' dilemma) or less aggressive (battle of the sexes, or chicken) option that the control group of professionals were. Because of (or perhaps in spite of) this, they earned more overall in the games. So, it appears that CEOs really do act differently than other (otherwise similar) people. Just not in the way that we might expect.

Holm et al. argue that this may be because less aggressive choices may be helpful because they allow the CEO "to mobilize support and loyalty from employees and business partners". I think we would need a lot more research before we can draw any conclusions about the mechanisms that explain these observed differences. Hopefully, there is more research on this to come.

[HT: Marginal Revolution, last year]