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Private Information and Inference about Inference : Experiments with Human Subjects and Computer Agents

This paper describes how players infer other players’ inference in the game of Schredelseker [7]. Schredelseker did a series of laboratory experiments and simulations of his zero-sum game played by players who are informed to different degrees, reporting that modestly informed players often suffered from greater losses than no-informed ones did. This paper formulates each player’s profit rigorously to examine why such paradoxical income distribution was observed. In addition, mathematical analysis and experiments with human subjects and/or computer agents are given to illustrate how players’ inter-inference about other players’ inference affects the distribution of income among them.