After going back and forth between N2 and N3 in my time attacks I have now settled with N2 tyres. Comparing the N1, N2 & N3 in GT4, in some ways I feel that the N1 is easier to drive with even though you have less grip. Once you have gotten used to their grip level (it's easy to overdrive going straight to lower grip tires
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, they are more predictable on the limit. I think it also says so when you chose tires in the game, for instance the N3 will give you less warning when on the limit. For instance take the BMW 330i on N1 at Tsukuba and see how nice and easy it drifts.
I also feel that the N2 shows more of each cars character than the N3, because it's easier to get a feel for the difference between cars. Doing a quick test on the Nurburgring I was around 7-10 seconds slower in different cars on the N2 than on the N3, but you have to work twice as hard for the lap times.
Compared to real life my N3 lap times are much closer than my N2 lap times. One reason for that off course might be that I'm a bad driver

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In the latest EVO magazine it was an intersting comment from a Jaguar engineer working on the XKR at the Nurburgring. He said he was not a fan of all the manufactors showing off their laptimes, because some of them used special "Cup" tires to get good times. On their Dunlop tires with good wet weather qualities they could lap around 8:15 ( I think it was). With Cup tires he reckon the XKR would be around 20 seconds quicker. Something we should consider when comparing to real life?
Cheers