Level-n bounded rationality and dominated strategies in normal-form games
Dominated strategies play a crucial role in game theory and its solution concepts. While empirical studies confirm that humans generally avoid dominated strategies, they also suggest that humans seldom believe others will avoid such strategies. Hence, the iterated dominance solution is not likely to be a good predictor of one-shot behavior. We investigate how the salience of a dominated strategy affects the extent to which players believe that others will recognize and avoid it. Level-n theory serves as a useful tool in this empirical investigation, as it is able to classify behavior into levels of bounded rationality and provide clear statistical tests for model comparisons. We find that even the most obviously dominated strategies do not induce consistently significant behavioral differences in a variety of one-shot games. Nevertheless, the fit of the Level-n model can be improved by hypothesizing that the Level-0 choices and Level-1 beliefs are tilted slightly away from the uniform distribution to the extent that the average payoff of a strategy falls below a threshold.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Katok, Elena & Sefton, Martin & Yavas, Abdullah, 2002. "Implementation by Iterative Dominance and Backward Induction: An Experimental Comparison," Journal of Economic Theory, Elsevier, vol. 104(1), pages 89-103, May.
- Costa-Gomes, Miguel & Crawford, Vincent P & Broseta, Bruno, 2001.
"Cognition and Behavior in Normal-Form Games: An Experimental Study,"
Econometric Society, vol. 69(5), pages 1193-1235, September.
- Miguel Costa-Gomes & Vincent P. Crawford & Bruno Broseta, "undated". "Cognition and Behavior in Normal-Form Games:An Experimental Study," Discussion Papers 00/45, Department of Economics, University of York.
- Broseta, Bruno & Costa-Gomes, Miguel & Crawford, Vincent P., 2000. "Cognition and Behavior in Normal-Form Games: An Experimental Study," University of California at San Diego, Economics Working Paper Series qt0fp8278k, Department of Economics, UC San Diego.
- Costa-Gomes, Miguel & Crawford, Vincent P. & Broseta, Bruno, 1998. "Cognition and Behavior in Normal-Form Games: An Experimental Study," University of California at San Diego, Economics Working Paper Series qt1vn4h7x5, Department of Economics, UC San Diego.
- Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-1326, December.
- Stahl, Dale O., 1996. "Boundedly Rational Rule Learning in a Guessing Game," Games and Economic Behavior, Elsevier, vol. 16(2), pages 303-330, October.
- Stahl, Dale II & Wilson, Paul W., 1994. "Experimental evidence on players' models of other players," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 309-327, December.
- Selten, Reinhard & Abbink, Klaus & Buchta, Joachim & Sadrieh, Abdolkarim, 2003. "How to play (3 x 3)-games.: A strategy method experiment," Games and Economic Behavior, Elsevier, vol. 45(1), pages 19-37, October.
- Reinhard Selten & Klaus Abbink & Joachim Buchta & Abdolkarim Sadrieh, 2000. "How to Play 3x3-Games A Strategy Method Experiment," Bonn Econ Discussion Papers bgse3_2001, University of Bonn, Germany.
- Selten, R. & Abbink, K. & Buchta, J. & Sadrieh, A., 2002. "How to Play 3x3 Games : A Strategy Method Experiment," Discussion Paper 2002-39, Tilburg University, Center for Economic Research.
- Ernan Haruvy & Dale O. Stahl & Paul W. Wilson, 2001. "Modeling And Testing For Heterogeneity In Observed Strategic Behavior," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 146-157, February. Full references (including those not matched with items on IDEAS)