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  • Heller, Yuval

Abstract

Experimental evidence suggest that people only use 1-3 iterations of strategic reasoning, and that some people systematically use less iterations than others. In this paper, we present a novel evolutionary foundation for these stylized facts. In our model, agents interact in finitely repeated Prisoner's Dilemma, and each agent is characterized by the number of steps he thinks ahead. When two agents interact, each of them has an independent probability to observe the opponent's type. We show that if this probability is not too close to 0 or 1, then the evolutionary process admits a unique stable outcome, in which the population includes a mixture of “naive” agents who think 1 step ahead, and “sophisticated” agents who think 2-3 steps ahead.

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File URL: http://mpra.ub.uni-muenchen.de/39429/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39429.

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Date of creation: 13 Jun 2012
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Handle: RePEc:pra:mprapa:39429

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Keywords: Indirect evolution; cognitive hierarchy; bounded forward-looking; Prisoner's Dilemma; Cooperation;

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References

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Cited by:
  1. Heller, Yuval & Winter, Eyal, 2013. "Rule Rationality," MPRA Paper 48746, University Library of Munich, Germany.

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