The development of rationality in games with hidden information

Abstract

We present the first lab-in-the-field experiment that studies the strategic behavior of privately informed children and adolescents. We recruited 1662 participants from 8 to 18 years old to play a game of two-sided asymmetric information. We show that participants of all ages understand the fundamental relationship between action and private information (first level of rationality or ‘choice monotonicity’). Older participants are more likely to select strategies that match basic features of the optimal strategy compared to their younger peers (second level of rationality or ‘strategic consistency’). However, in none of our grades the individuals react to variations in incentives triggered by changes in game structure (third level of rationality or ‘environmental variability’). Remarkably, participants with heightened emotional intelligence exhibit a greater tendency to play strategically, best respond to others and, consequently, achieve higher payoffs. It reveals a strong, robust connection between affective theory-of-mind and cognitive theory-of-mind.