Endogenous Depth of Reasoning

• 成果类型: Article
• 署名作者: Alaoui, Larbi; Penta, Antonio
• 署名单位: Pompeu Fabra University; Barcelona School of Economics; University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdv052
• 发表日期: 2016
• 页码: 1297-1333
• 关键词: cognitive hierarchy model; robust predictions; players models; guessing games; beauty-contest; BEHAVIOR; thinking; beliefs; THEOREM

摘要

We introduce a model of strategic thinking in games of initial response. Unlike standard models of strategic thinking, in this framework the player's depth of reasoning is endogenously determined, and it can be disentangled from his beliefs over his opponent's cognitive bound. In our approach, individuals act as if they follow a cost-benefit analysis. The depth of reasoning is a function of the player's cognitive abilities and his payoffs. The costs are exogenous and represent the game-theoretical sophistication of the player; the benefit instead is related to the game payoffs. Behaviour is in turn determined by the individual's depth of reasoning and his beliefs about the reasoning process of the opponent. Thus, in our framework, payoffs not only affect individual choices in the traditional sense, but they also shape the cognitive process itself. Our model delivers testable implications on players' chosen actions as incentives and opponents change. We then test the model's predictions with an experiment. We administer different treatments that vary beliefs over payoffs and opponents, as well as beliefs over opponents' beliefs. The results of this experiment, which are not accounted for by current models of reasoning in games, strongly support our theory. We also show that the predictions of our model are highly consistent, both qualitatively and quantitatively, with well-known unresolved empirical puzzles. Our approach therefore serves as a novel, unifying framework of strategic thinking that allows for predictions across games.