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Bridging Level-K to Nash Equilibrium

Author

Listed:
  • Dan Levin

    (Ohio State University)

  • Luyao Zhang

    (Duke Kunshan University)

Abstract

We introduce NLK, a model that connects the Nash equilibrium (NE) and level-k. It allows a player in a game to believe that her opponent may be either less or as sophisticated as she is, a view supported in psychology. We apply NLK to data from five published papers on static, dynamic, and auction games. NLK provides different predictions from those of the NE and level-k; moreover, a simple version of NLK explains the experimental data better in many cases, with the same or fewer parameters. We discuss extensions to games with more than two players and heterogeneous beliefs.

Suggested Citation

  • Dan Levin & Luyao Zhang, 2022. "Bridging Level-K to Nash Equilibrium," The Review of Economics and Statistics, MIT Press, vol. 104(6), pages 1329-1340, November.
    • Handle: RePEc:tpr:restat:v:104:y:2022:i:6:p:1329-1340
    DOI: 10.1162/rest_a_00990
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    Cited by:

    1. Benjamin Patrick Evans & Mikhail Prokopenko, 2024. "Bounded rationality for relaxing best response and mutual consistency: the quantal hierarchy model of decision making," Theory and Decision, Springer, vol. 96(1), pages 71-111, February.

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