Iterative dominance in young children: Experimental evidence in simple two-person games

We investigate iterative reasoning in children from pre-kindergarten to first grade (4–7 years old). We consider two-person games that have a unique Trembling Hand Perfect Equilibrium but vary in three key features: iterative complexity (the number of iterations required to reach the equilibrium), perspective requirement (the identity of the player with whom the iteration should start) and action symmetry. The beliefs of participants regarding the decision of their partners are elicited either before or after their own choices are made. We obtain the following findings. (1) Iterative complexity is not necessarily a cause of equilibrium failure. (2) Games where the equilibrium action is the same for both players are correctly solved more often. (3) Starting a recursion by solving the problem of a different player is non-intuitive in all our age groups but it can be overcome by asking participants to think about their partner’s decision before making their own choices. (4) Such ex-ante belief elicitation can, however, be detrimental in complex asymmetric games. We discuss these results in the context of the development of logical abilities and theory of mind abilities.