Universitat Pompeu Fabra

Level-k Reasoning and Incentives: An Experiment

Date : Friday, 23 March 2012

Hour : 15:00

Place: Economics Department Faculty Lounge, Natuk Birkan Building

Abstract: Level-k theories are agnostic over whether individuals stop the iterated reasoning because of their own cognitive constraints, or because of their beliefs over the cognitive constraints of their opponents. In practice, individuals may vary the number of rounds of introspection as they change their beliefs over their opponent. Moreover, if performing additional rounds of introspection is cognitively costly, individuals may decide that the benefit of an extra round is not worth the cognitive effort. Consequently, increasing players' incentives could increase the number of rounds of iterated deletion that they perform. Awareness of this fact may also lead them to react to changes in their opponents' incentives. *-joint with Antonio Penta (University of Wisconsin-Madison)

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