The Dirty Faces Game Revisited
AbstractWeber (2001) uses the Dirty Faces Game to examine the depth of iterated rationality. Weber does not consider equilibria that contain weakly dominated actions. So he implicitly assumes that it is common knowledge that no one ever uses weakly dominated actions. We show that allowing for equilibria in weakly dominated strategies greatly extents the set of potentially rational actions. The original game therefore lacks discriminatory power, as many actions categorised as irrational by Weber can actually be part of an equilibrium strategy. We slightly modify the payoff structure and establish strict dominance, which leads to a unique equilibrium. The resulting dominance-solvable game is implemented in an experiment. We find that subjects are either able to iterate right to the equilibrium or fail to do so when two or more steps of iteration are necessary. Virtually all subjects were able to do one step of iteration. Further, we find evidence that the lack of confidence in other players' iterative abilities induces deviations from equilibrium play.
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Bibliographic InfoPaper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2007-01.
Length: 26 pages
Date of creation: 2007
Date of revision:
game theory; iterative reasoning; experimental economics;
Other versions of this item:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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- Choo, Lawrence C.Y, 2014. "Trading Participation Rights to the Red Hat Puzzle. Will Markets allocate the rights for performing decision tasks to the more abled players?," MPRA Paper 55569, University Library of Munich, Germany.
- Lawrence C. Y. Choo, 2014. "Trading Participation Rights to the “Red Hat Puzzle”. An Experiment," Discussion Papers 1408, Exeter University, Department of Economics.
- Ludovic Renou & Ralph C. Bayer, 2008. "Homo Sapiens Sapiens Meets Homo Strategicus at the Laboratory," Discussion Papers in Economics 08/16, Department of Economics, University of Leicester, revised Nov 2008.
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