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A generalized cognitive hierarchy model of games

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  • Chong, Juin-Kuan
  • Ho, Teck-Hua
  • Camerer, Colin

Abstract

Subjects in simple games frequently exhibit non-equilibrium behaviors. Cognitive hierarchy (CH) and level k (LK) are two prevailing structural models that capture such behaviors well. This paper proposes a generalized CH (GCH) model that nests a variant of the LK model, called LM. GCH differs from CH in two ways. First, each lower level's actual frequency is exponentially weighted with α to form level-k's belief on relative proportions; α captures stereotype bias. CH assumes no stereotype bias (α=1) and LM assumes extreme bias (α=∞). Second, GCH replaces random choice with minimum aversion for level 0. Level 0s are more likely to choose strategies that never yield the minimum payoff for any of the opponent's strategies. GCH captures behaviors better than CH and LK in fifty-five n×m games from four datasets. Robustness tests using three new games further validate GCHs descriptive strength over CH and LK.

Suggested Citation

  • Chong, Juin-Kuan & Ho, Teck-Hua & Camerer, Colin, 2016. "A generalized cognitive hierarchy model of games," Games and Economic Behavior, Elsevier, vol. 99(C), pages 257-274.
  • Handle: RePEc:eee:gamebe:v:99:y:2016:i:c:p:257-274 DOI: 10.1016/j.geb.2016.08.007
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    Cited by:

    1. Bogliacino, Francesco & Codagnone, Cristiano, 2017. "Microfoundations, Behaviour, and Evolution: Evidence from Experiments," MPRA Paper 82479, University Library of Munich, Germany.

    More about this item

    Keywords

    Cognitive hierarchy; Level-k model; Level-m model; Generalized cognitive hierarchy; Non-equilibrium structural models; Behavioral game theory;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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