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Depth of Reasoning Models with Sophisticated Agents

Author

Listed:
  • Peter G Moffatt

    (School of Economics, University of East Anglia, Norwich.)

  • Ganna Pogrebna

    (The Alan Turing Institute, The University of Sydney)

  • Graciela Zevallos-Porles

    (School of Economics, University of East Anglia, Norwich.)

Abstract

In the context of guessing games, we propose the Sophisticated Reasoning Model (SRM) which includes a “sophisticated†type. A parameter ps represents the proportion of sophisticated players in the population. Asophisticated player is one who forms a belief (eps) of the proportion of the population who are sophisticated (following the same cognitive process as themselves) and best responds to this belief. The model nests the standard Level-k and cognitive hierarchy models (when eps = 0) and also Nash behaviour (when eps = 1). Moreover, a sophisticated player with correct beliefs (eps = ps) has best response equal to the winning guess. The model is extended to allow heterogeneity in beliefs. When applied to field data from a guessing game, only 9% of players are estimated to be sophisticated, but these players greatly over-estimate the proportion who are of the same type. This is interpreted as a manifestation of the Dunning-Kruger effect.

Suggested Citation

  • Peter G Moffatt & Ganna Pogrebna & Graciela Zevallos-Porles, 2020. "Depth of Reasoning Models with Sophisticated Agents," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 20-06, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:wcbess:20-06
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    References listed on IDEAS

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