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Cognitive ability and learning to play equilibrium: A level-k analysis

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  • Gill, David
  • Prowse, Victoria

Abstract

In this paper we investigate how cognitive ability influences behavior, success and the evolution of play towards Nash equilibrium in repeated strategic interactions. We study behavior in a p-beauty contest experiment and find striking differences according to cognitive ability: more cognitively able subjects choose numbers closer to equilibrium, converge more frequently to equilibrium play and earn more even as behavior approaches the equilibrium prediction. To understand better how subjects with different cognitive abilities learn differently, we estimate a structural model of learning based on level-k reasoning. We find a systematic positive relationship between cognitive ability and levels; furthermore, the average level of more cognitively able subjects responds positively to the cognitive ability of their opponents, while the average level of less cognitively able subjects does not respond at all. Our results suggest that, in strategic environments, higher cognitive ability translates into better analytic reasoning and a better ‘theory of mind’

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38317.

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Date of creation: 23 Apr 2012
Date of revision: 23 Apr 2012
Handle: RePEc:pra:mprapa:38317

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Related research

Keywords: Cognitive ability; Bounded rationality; Learning; Convergence; Level-k; Nonequilibrium behavior; Beauty contest; Repeated games; Structural modeling; Theory of mind; Intelligence; Raven test;

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Citations

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Cited by:
  1. Brañas-Garza, Pablo & García-Muñoz, Teresa & González, Roberto Hernán, 2012. "Cognitive effort in the Beauty Contest Game," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 83(2), pages 254-260.
  2. Chen, Chia-Ching & Chiu, I-Ming & Smith, John & Yamada, Tetsuji, 2012. "Too smart to be selfish? Measures of cognitive ability, social preferences, and consistency," MPRA Paper, University Library of Munich, Germany 41078, University Library of Munich, Germany.
  3. Allred, Sarah & Duffy, Sean & Smith, John, 2013. "Cognitive Load and Strategic Sophistication," MPRA Paper, University Library of Munich, Germany 47997, University Library of Munich, Germany.
  4. Carpenter, Jeffrey & Graham, Michael & Wolf, Jesse, 2013. "Cognitive ability and strategic sophistication," Games and Economic Behavior, Elsevier, Elsevier, vol. 80(C), pages 115-130.
  5. Eizo Akiyama & Nobuyuki Hanaki & Ryuichiro Ishikawa, 2013. "How Do Experienced Traders Respond to Inflows of Inexperienced Traders? An Experimental Analysis," Working Papers, HAL halshs-00920413, HAL.
  6. Duffy, Sean & Smith, John, 2012. "Cognitive load in the multi-player prisoner's dilemma game: Are there brains in games?," MPRA Paper, University Library of Munich, Germany 38825, University Library of Munich, Germany.
  7. Heller, Yuval, 2012. "Three steps ahead," MPRA Paper, University Library of Munich, Germany 39429, University Library of Munich, Germany.
  8. Mikhail Drugov & Roberto Hernán-González & Praveen Kujal & Marta Troya Martinez, 2013. "Cheap Talk with Two Audiences: An Experiment," Working Papers, Chapman University, Economic Science Institute 13-32, Chapman University, Economic Science Institute.
  9. Sotiris Georganas & Paul J. Healy & Roberto A. Weber, 2014. "On the Persistence of Strategic Sophistication," CESifo Working Paper Series, CESifo Group Munich 4653, CESifo Group Munich.
  10. Fehr, Dietmar & Huck, Steffen, 2013. "Who knows It is a game? On rule understanding, strategic awareness and cognitive ability," Discussion Papers, Research Unit: Economics of Change, Social Science Research Center Berlin (WZB) SP II 2013-306, Social Science Research Center Berlin (WZB).

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