A Bayesian cognitive hierarchy model with fixed reasoning levels

2021 ◽  
Vol 192 ◽  
pp. 704-723
Author(s):  
Jun Feng ◽  
Xiangdong Qin ◽  
Xiaoyuan Wang
Keyword(s):  
Hierarchy Model ◽  
Cognitive Hierarchy

scholarly journals A generalized cognitive hierarchy model of games

2016 ◽  
Vol 99 ◽  
pp. 257-274 ◽  
Author(s):  
Juin-Kuan Chong ◽  
Teck-Hua Ho ◽  
Colin Camerer
Keyword(s):  
Hierarchy Model ◽  
Cognitive Hierarchy

scholarly journals Testing Game Theory in the Field: Swedish LUPI Lottery Games

2011 ◽  
Vol 3 (3) ◽  
pp. 1-33 ◽  
Author(s):  
Robert Östling ◽  
Joseph Tao-yi Wang ◽  
Eileen Y Chou ◽  
Colin F Camerer
Keyword(s):  
Game Theory ◽  
Positive Integer ◽  
Field Data ◽  
Hierarchy Model ◽  
Cognitive Hierarchy ◽  
Game Players ◽  
Degree Of Convergence ◽  
Positive Integers

Game theory is usually difficult to test in the field because predictions typically depend sensitively on features that are not controlled or observed. We conduct one such test using both laboratory and field data from the Swedish lowest unique positive integer (LUPI) game. In this game, players pick positive integers and whoever chooses the lowest unique number wins. Equilibrium predictions are derived assuming Poisson distributed population uncertainty. The field and lab data show similar patterns. Despite various deviations from equilibrium, there is a surprising degree of convergence toward equilibrium. Some deviations can be rationalized by a cognitive hierarchy model. (JEL C70, C93, D44, H27)

scholarly journals A Cognitive Hierarchy Model of Games

2004 ◽  
Vol 119 (3) ◽  
pp. 861-898 ◽  
Author(s):  
C. F. Camerer ◽  
T.-H. Ho ◽  
J.-K. Chong
Keyword(s):  
Hierarchy Model ◽  
Cognitive Hierarchy

scholarly journals On the Value of Alert Systems and Gentle Rule Enforcement in Addressing Pandemics

2020 ◽  
Vol 11 ◽  
Author(s):  
Yefim Roth ◽  
Ori Plonsky ◽  
Edith Shalev ◽  
Ido Erev
Keyword(s):  
Small Sample ◽  
Decision Makers ◽  
Trust Game ◽  
Small Samples ◽  
Policy Makers ◽  
Hierarchy Model ◽  
Current Context ◽  
Cognitive Hierarchy ◽  
Reckless Behavior ◽  
Past Experiences

The COVID-19 pandemic poses a major challenge to policy makers on how to encourage compliance to social distancing and personal protection rules. This paper compares the effectiveness of two policies that aim to increase the frequency of responsible health behavior using smartphone-tracking applications. The first involves enhanced alert capabilities, which remove social externalities and protect the users from others’ reckless behavior. The second adds a rule enforcement mechanism that reduces the users’ benefit from reckless behavior. Both strategies should be effective if agents are expected-value maximizers, risk averse, and behave in accordance with cumulative prospect theory (Tversky and Kahneman, 1992) or in accordance with the Cognitive Hierarchy model (Camerer et al., 2004). A multi-player trust-game experiment was designed to compare the effectiveness of the two policies. The results reveal a substantial advantage to the enforcement application, even one with occasional misses. The enhanced-alert strategy was completely ineffective. The findings align with the small samples hypothesis, suggesting that decision makers tend to select the options that lead to the best payoff in a small sample of similar past experiences. In the current context, the tendency to rely on a small sample appears to be more consequential than other deviations from rational choice.

scholarly journals Does Strategic Ability Affect Efficiency? Evidence from Electricity Markets

2019 ◽  
Vol 109 (12) ◽  
pp. 4302-4342 ◽  
Author(s):  
Ali Hortaçsu ◽  
Fernando Luco ◽  
Steven L. Puller ◽  
Dongni Zhu
Keyword(s):  
Electricity Markets ◽  
Electricity Market ◽  
Price Competition ◽  
Structural Model ◽  
Significant Heterogeneity ◽  
Hierarchy Model ◽  
Cognitive Hierarchy ◽  
Strategic Ability ◽  
Equilibrium Bidding ◽  
The Cost

Oligopoly models of price competition predict that strategic firms exercise market power and generate inefficiencies. However, heterogeneity in firms’ strategic ability also generates inefficiencies. We study the Texas electricity market where firms exhibit significant heterogeneity in how they deviate from Nash equilibrium bidding. These deviations, in turn, increase the cost of production. To explain this heterogeneity, we embed a cognitive hierarchy model into a structural model of bidding and estimate firms’ strategic sophistication. We find that firm size and manager education affect sophistication. Using the model, we show that mergers which increase sophistication can increase efficiency despite increasing market concentration. (JEL D24, D43, G34, L13, L25, L94)

scholarly journals A cognitive hierarchy model of behavior in the action commitment game

2013 ◽  
Vol 43 (3) ◽  
pp. 551-577 ◽  
Author(s):  
Daniel Carvalho ◽  
Luís Santos-Pinto
Keyword(s):  
Hierarchy Model ◽  
Cognitive Hierarchy

scholarly journals Limited higher order beliefs and the welfare effects of public information

2015 ◽  
Vol 42 (6) ◽  
pp. 1005-1028 ◽  
Author(s):  
Camille Cornand ◽  
Frank Heinemann
Keyword(s):  
Private Information ◽  
Public Information ◽  
Welfare Effects ◽  
Content Type ◽  
Strategic Complementarities ◽  
Aggregate Behavior ◽  
Hierarchy Model ◽  
Public Signals ◽  
Cognitive Hierarchy ◽  
The Government

Purpose – In games with strategic complementarities, public information about the state of the world has a larger impact on equilibrium actions than private information of the same precision, because the former is more informative about the likely behavior of others. This may lead to welfare-reducing “overreactions” to public signals as shown by Morris and Shin (2002). Recent experiments on games with strategic complementarities show that subjects attach a lower weight to public signals than theoretically predicted. The purpose of this paper is to reconsider the welfare effects of public signals accounting for the weights observed in experiments. Design/methodology/approach – Aggregate behavior observed in experiments on games with strategic complementarities can be explained by a cognitive hierarchy model where subjects employ limited levels of reasoning. They respond in a rational way to the non-strategic part of a game and they account for other players responding rationally, but they neglect that other players also account for others’ rationality. This paper analyzes the welfare effects of public information under such limited levels of reasoning. Findings – In the model by Morris and Shin (2002) public information is always welfare improving if strategies are derived from such low reasoning levels. The optimal degree of publicity is decreasing in the levels of reasoning. For the observed average level of reasoning, full transparency is optimal, if public information is more precise than private information. If the policy maker has instruments that are perfect substitutes to private actions, the government should secretly respond to its information without disclosing or signaling it to the private sector independent of the degree of private agents’ rationality. Originality/value – This paper takes experimental evidence back to theory and shows that the main result obtained by the theory under rational behavior breaks down if theory accounts for the bounded rationality observed in experiments.

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