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Consistent Depth of Reasoning in Level-k Models

Author

Listed:
  • David J. Cooper
  • Enrique Fatas
  • Antonio J. Morales
  • Shi Qi

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.

Suggested Citation

  • David J. Cooper & Enrique Fatas & Antonio J. Morales & Shi Qi, 2024. "Consistent Depth of Reasoning in Level-k Models," American Economic Journal: Microeconomics, American Economic Association, vol. 16(4), pages 40-76, November.
    • Handle: RePEc:aea:aejmic:v:16:y:2024:i:4:p:40-76
    DOI: 10.1257/mic.20210237
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    References listed on IDEAS

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    1. Goeree, Jacob K. & Holt, Charles A., 2005. "An experimental study of costly coordination," Games and Economic Behavior, Elsevier, vol. 51(2), pages 349-364, May.
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    More about this item

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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