American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Consistent Depth of Reasoning in Level-k Models
American Economic Journal: Microeconomics
vol. 16,
no. 4, November 2024
(pp. 40–76)
Abstract
Level-k models often assume that individuals employ a fixed depth of reasoning across different games. We study this assumption by having subjects make choices in five classes of games chosen to identify inconsistent depth of reasoning. We demonstrate that depth of reasoning is pervasively inconsistent, changing both within and between classes of games. We show that this cannot easily be explained by factors such as subject confusion, changing beliefs about others' depth of reasoning, stochastic choice, model misspecification, changing incentives, or low cognitive ability. We develop a simple model incorporating ambiguity aversion that predicts inconsistent depth of reasoning.Citation
Cooper, David J., Enrique Fatas, Antonio J. Morales, and Shi Qi. 2024. "Consistent Depth of Reasoning in Level-k Models." American Economic Journal: Microeconomics, 16 (4): 40–76. DOI: 10.1257/mic.20210237Additional Materials
JEL Classification
- C57 Econometrics of Games and Auctions
- C90 Design of Experiments: General
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
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