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A Cognitive Hierarchy Model of Games

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  • Colin F. Camerer
  • Teck-Hua Ho
  • Juin-Kuan Chong

Abstract

Players in a game are "in equilibrium" if they are rational, and accurately predict other players' strategies. In many experiments, however, players are not in equilibrium. An alternative is "cognitive hierarchy" (CH) theory, where each player assumes that his strategy is the most sophisticated. The CH model has inductively defined strategic categories: step 0 players randomize; and step k thinkers best-respond, assuming that other players are distributed over step 0 through step k - 1. This model fits empirical data, and explains why equilibrium theory predicts behavior well in some games and poorly in others. An average of 1.5 steps fits data from many games. © 2004 MIT Press

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Bibliographic Info

Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 119 (2004)
Issue (Month): 3 (August)
Pages: 861-898

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Handle: RePEc:tpr:qjecon:v:119:y:2004:i:3:p:861-898

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