We study decisions that involve choosing between different numbers of options under time pressure using eye-tracking to monitor the search process of the subjects. We find that subjects are quite adept at optimizing within the set of items that they see, that the initial search process is random in value, that subjects use a stopping rule to terminate the search process that combines features of optimal search and satisficing, and that subjects search more often in certain focal regions of the display, which leads to choice biases. (JEL C91, D12, M31)

We used functional MRI (fMRI) to investigate human mental processes in a competitive interactive setting—the “beauty contest” game. This game is well-suited for investigating whether and how a player's mental processing incorporates the thinking process of others in strategic reasoning. We apply a cognitive hierarchy model to classify subject's choices in the experimental game according to the degree of strategic reasoning so that we can identify the neural substrates of different levels of strategizing. According to this model, high-level reasoners expect the others to behave strategically, whereas low-level reasoners choose based on the expectation that others will choose randomly. The data show that high-level reasoning and a measure of strategic IQ (related to winning in the game) correlate with the neural activity in the medial prefrontal cortex, demonstrating its crucial role in successful mentalizing. This supports a cognitive hierarchy model of human brain and behavior.

This paper proposes a method to measure strategic uncertainty by eliciting certainty equivalents analogous to measuring risk attitudes in lotteries.