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Robustness of Level-k Reasoning in Generalized Beauty Contest Games

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  • Dmitry Shapiro
  • Xianwen Shi
  • Artie Zillante

Abstract

We study how the predictive power of level-k models changes as we perturb the classical beauty contest setting along two dimensions: the strength of the coordination motive and the information symmetry. We use the Morris and Shin (2002) model as the unified framework for our study, and find that the predictive power of level-k models varies considerably along these two dimensions. Level-k models are successful in predicting subject behavior in settings with symmetric information and a strong coordination motive. When we introduce private information or weaken the strength of the coordination motive, the predictive power of level-k models decreases significantly.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-380.

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Length: 32 pages
Date of creation: 28 Oct 2009
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-380

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Keywords: level-k models; beauty contest; coordination;

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  7. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  8. Ho, Teck-Hua & Camerer, Colin & Weigelt, Keith, 1998. "Iterated Dominance and Iterated Best Response in Experimental "p-Beauty Contests."," American Economic Review, American Economic Association, vol. 88(4), pages 947-69, September.
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Cited by:
  1. Romain Baeriswyl & Camille Cornand, 2011. "Reducing overreaction to central banks’ disclosures : theory and experiment," Working Papers 1141, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  2. Camille Cornand & Frank Heinemann, 2010. "Measuring Agents' Reaction to Private and Public Information in Games with Strategic Complementarities," CESifo Working Paper Series 2947, CESifo Group Munich.

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