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Robust Predictions under Finite Depth of Reasoning

Author

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  • Kota Murayama

    (Department of Economics, Northwestern University, USA)

Abstract
When players have a finite depth of reasoning, it is usually assumed that each player has a commonly known anchor behavior. This paper provides a general framework to examine whether predictions are robust to uncertainty about other players' anchors. We give two different sufficient conditions for the robustness. The first condition shows that any p-dominant equilibrium is robust if players put sufficiently small probability (decreasing in p) on high-depth types. This result highlights a distinction between two prominent finite depth of reasoning models: a risk dominated equilibrium is robust in the cognitive hierarchy model, but not in the level-k model. We also show that equilibria of dominance solvable models are robust.

Suggested Citation

  • Kota Murayama, 2015. "Robust Predictions under Finite Depth of Reasoning," Discussion Paper Series DP2015-28, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2015-28
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2015-28.pdf
    File Function: First version, 2015
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    References listed on IDEAS

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    Cited by:

    1. Atsushi Kajii & Stephen Morris, 2020. "Notes on “refinements and higher order beliefs”," The Japanese Economic Review, Springer, vol. 71(1), pages 35-41, January.
    2. Heifetz, Aviad & Kets, Willemien, 2018. "Robust multiplicity with a grain of naiveté," Theoretical Economics, Econometric Society, vol. 13(1), January.

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    More about this item

    Keywords

    Robustness; Iterative reasoning; Level-k model; Cognitive-hierarchy model; Higher-order belief; Bounded rationality;
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