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Guessing two thirds of the group average

Question

Each participant privately writes a number between 00 and 100100. The winner is whoever is closest to two thirds of the mean of all the numbers. What number should you write?

Short answer

With fully rational players, 00; in practice something well below 3333. No guess above 662366\tfrac23 can win, so rational players avoid it; then 444944\tfrac49 is a ceiling, and iterating the elimination drives the unique equilibrium to 00. Real groups stop after a few levels of reasoning, so winning guesses are often near 2020.

Adapted from Wilmott, Frequently Asked Questions in Quantitative Finance, ch. 10 brainteaser 'Two thirds of the average', p.354; question and answer rewritten by SelfMadeQuant.com.

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