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Inclusive Cognitive Hierarchy in Collective Decisions

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Abstract

We study the implications of structural models of non-equilibrium thinking, in which players best respond while holding heterogeneous beliefs on the cognitive levels of others. We introduce an inclusive cognitive hierarchy model, in which players are capable of projecting the self to others in regard to their cognitive level. The model is tested in a laboratory experiment of collective decision-making, which supports inclusiveness. Our theoretical results show that inclusiveness is a key factor for asymptotic properties of deviations from equilibrium behavior. Asymptotic behavior can be categorized into three distinct types: naïve, Savage rational with inconsistent beliefs, and sophisticated.

Suggested Citation

  • Yukio Koriyama & Ali Ozkes, 2018. "Inclusive Cognitive Hierarchy in Collective Decisions," AMSE Working Papers 1819, Aix-Marseille School of Economics, France.
    • Handle: RePEc:aim:wpaimx:1819
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    Cited by:

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    3. Feng, Jun & Qin, Xiangdong & Wang, Xiaoyuan, 2021. "A Bayesian cognitive hierarchy model with fixed reasoning levels," Journal of Economic Behavior & Organization, Elsevier, vol. 192(C), pages 704-723.
    4. Dan Levin & Luyao Zhang, 2022. "Bridging Level-K to Nash Equilibrium," Papers 2202.12292, arXiv.org, revised Feb 2022.

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    More about this item

    Keywords

    collective decision-making; bounded rationality; cognitive hierarchy; information aggregation;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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