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Reasoning about Others’ Reasoning

Author

Listed:
  • Larbi Alaoui
  • Katharina A. Janezic
  • Antonio Penta
Abstract
Recent experiments suggest that level-k behavior is often driven by subjects' beliefs, rather than their binding cognitive bounds. But the extent to which this is true in general is not completely understood, mainly because disentangling 'cognitive' and 'behavioral' levels is challenging experimentally and theoretically. In this paper we provide a simple experimental design strategy (the 'tutorial method') to disentangle the two concepts purely based on subjects' choices. We also provide a 'replacement method' to assess whether the increased sophistication observed when stakes are higher is due to an increase in subjects' own understanding or their beliefs over others' increased incentives to reason. We find evidence that, in some of our treatments, the cognitive bound is indeed binding for a large fraction of subjects. Furthermore, a significant fraction of subjects do take into account others' incentives to reason. Our findings also suggest that in general, level-k behavior should not be taken as driven either by cognitive limits alone or beliefs alone. Rather, there is an interaction between own cognitive bound and reasoning about the opponent's reasoning process. From a methodological viewpoint, the tutorial and replacement methods have broader applicability, and can be used to study the beliefs-cognition dichotomy and higher order beliefs effects in non level-k settings as well.

Suggested Citation

  • Larbi Alaoui & Katharina A. Janezic & Antonio Penta, 2017. "Reasoning about Others’ Reasoning," Working Papers 1003, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1003
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kets, Willemien & Kager, Wouter & Sandroni, Alvaro, 2022. "The value of a coordination game," Journal of Economic Theory, Elsevier, vol. 201(C).
    2. Tilman Börgers & Jiangtao Li, 2019. "Strategically Simple Mechanisms," Econometrica, Econometric Society, vol. 87(6), pages 2003-2035, November.
    3. Nunnari, Salvatore & Proto, Eugenio & Rustichini, Aldo, 2024. "Cognitive Abilities and the Demand for Bad Policy," IZA Discussion Papers 17112, Institute of Labor Economics (IZA).
    4. Trabelsi, Emna & Hichri, Walid, 2021. "Central Bank Transparency with (semi-)public Information: Laboratory Experiments," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).
    5. Zafer Akin, 2023. "Asymmetric guessing games," Theory and Decision, Springer, vol. 94(4), pages 637-676, May.
    6. Burkhard C. Schipper & Hang Zhou, 2022. "Level-k Thinking in the Extensive Form," Working Papers 352, University of California, Davis, Department of Economics.
    7. Crawford, Vincent P., 2021. "Efficient mechanisms for level-k bilateral trading," Games and Economic Behavior, Elsevier, vol. 127(C), pages 80-101.
    8. Wei James Chen & Meng-Jhang Fong & Po-Hsuan Lin, 2023. "Measuring Higher-Order Rationality with Belief Control," Papers 2309.07427, arXiv.org.
    9. Rampal, Jeevant, 2022. "Limited Foresight Equilibrium," Games and Economic Behavior, Elsevier, vol. 132(C), pages 166-188.
    10. Açıkgöz, Bernur & Dubois, Dimitri & Nguyen-Huu, Adrien & Duchêne, Sébastien & Willinger, Marc, 2024. "Depth of reasoning in the 11–20 game differs between financial professionals and students. A lab-in-the-field experiment," Economics Letters, Elsevier, vol. 239(C).
    11. Ennio Bilancini & Leonardo Boncinelli & Luigi Luini, 2017. "Does Focality Depend on the Mode of Cognition? Experimental Evidence on Pure Coordination Games," Department of Economics University of Siena 771, Department of Economics, University of Siena.
    12. Ye Jin, 2021. "Does level-k behavior imply level-k thinking?," Experimental Economics, Springer;Economic Science Association, vol. 24(1), pages 330-353, March.
    13. Konstantinos Ioannidis, 2022. "Habitual Communication," Tinbergen Institute Discussion Papers 22-016/I, Tinbergen Institute.
    14. King King Li & Kang Rong, 2024. "A two-step guessing game," Theory and Decision, Springer, vol. 97(1), pages 89-108, August.
    15. King King Li & Kang Rong, 2023. "A Two-Step Guessing Game," Post-Print hal-04376266, HAL.

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    More about this item

    Keywords

    cognitive bound; depth of reasoning; higher-order beliefs. level-k reasoning; replacement method; tutorial method;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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