We were told the following:
Choose a whole number between 0 and 99 (inclusive).
He will calculate the average (mean) of the numbers chosen by everyone here and divide by 2.
The winner is the person that chooses the number closest to this (half the average).
What number would you pick?
I picked zero.
This is because it is the rational thing to do. If the average is 50 then half the average will be 25. But if half the average is 25 then everyone should choose 25. Then half the average will be 12.5. And so on... Eventually you end up at zero.
My calculation, however, was flawed. I had assumed that MSc Economics students are rational. Further, I had assumed that MSc Economics students think that MSc Economics students are rational.
One person sitting near me was irrational and put 50 (possibly they misunderstood the instructions). Already I knew that my guess of zero was not going to be exactly correct.
In the end the correct answer was about 13.
My first response was "Just how stupid are my coursemates?!"
But then I realised that many in the room would have suspected that others were irrational and so guessed a positive number. For example, the person sitting next to me put 7 although he knew the rational thing to put was zero.
Some people may have been trying to second guess what people thought people thought would do! And so on. Thus we cannot (yet) conclude that all my coursemates are stupid (as well as me).
In conclusion, even if you are rational, you may not always act as economists might expect because you might be expecting others to be irrational. Funny old world.
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