Quotation Özkes, Ali, Koriyama, Yukio. 2020. Inclusive Cognitive Hierarchy.


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Abstract

Cognitive hierarchy theory, a collection of structural models of non-equilibrium thinking, in which players' best responses rely on heterogeneous beliefs on others' strategies including naive behavior, proved powerful in explaining observations from a wide range of games. We introduce an inclusive cognitive hierarchy model, in which players do not rule out the possibility of facing opponents at their own thinking level. Our theoretical results show that inclusiveness is crucial for asymptotic properties of deviations from equilibrium behavior in expansive games. We show that the limiting behaviors are categorized in three distinct types: naive, Savage rational with inconsistent beliefs, and sophisticated. We test the model in a laboratory experiment of collective decision-making. The data suggests that inclusiveness is indispensable with regard to explanatory power of the models of hierarchical thinking.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Inclusive Cognitive Hierarchy
Year 2020
URL https://epub.wu.ac.at/7506
JEL C91, C92, D72, D91

Associations

People
Özkes, Ali (Former researcher)
External
Koriyama, Yukio (Ecole Polytechnique, France)
Organization
Institute for Markets and Strategy IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
1152 Game theory (Details)
5335 Political economic theory (Details)
5343 Economic theory (Details)
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