TY - UNPB
T1 - Inclusive Cognitive Hierarchy
AU - Özkes, Ali
AU - Koriyama, Yukio
PY - 2020
Y1 - 2020
N2 - Cognitive hierarchy theory, a collection of structural models of non-equilibrium thinking, in which players' best responses rely on heterogeneous beliefs on others' strategies including naive behavior, proved powerful in explaining observations from a wide range of games. We introduce an inclusive cognitive hierarchy model, in which players do not rule out the possibility of facing opponents at their own thinking level. Our theoretical results show that inclusiveness is crucial for asymptotic properties of deviations from equilibrium behavior in expansive games. We show that the limiting behaviors are categorized in three distinct types: naive, Savage rational with inconsistent beliefs, and sophisticated. We test the model in a laboratory experiment of collective decision-making. The data suggests that inclusiveness is indispensable with regard to explanatory power of the models of hierarchical thinking.
AB - Cognitive hierarchy theory, a collection of structural models of non-equilibrium thinking, in which players' best responses rely on heterogeneous beliefs on others' strategies including naive behavior, proved powerful in explaining observations from a wide range of games. We introduce an inclusive cognitive hierarchy model, in which players do not rule out the possibility of facing opponents at their own thinking level. Our theoretical results show that inclusiveness is crucial for asymptotic properties of deviations from equilibrium behavior in expansive games. We show that the limiting behaviors are categorized in three distinct types: naive, Savage rational with inconsistent beliefs, and sophisticated. We test the model in a laboratory experiment of collective decision-making. The data suggests that inclusiveness is indispensable with regard to explanatory power of the models of hierarchical thinking.
U2 - 10.57938/d84b1aca-f2e9-4041-b5c7-8eedbd7a0d7e
DO - 10.57938/d84b1aca-f2e9-4041-b5c7-8eedbd7a0d7e
M3 - WU Working Paper
T3 - Department of Strategy and Innovation Working Paper Series
BT - Inclusive Cognitive Hierarchy
ER -