Abstract
Subjects in simple games frequently exhibit non-equilibrium behaviors. Cognitive hierarchy (CH) and level k (LK) are two prevailing structural models that capture such behaviors well. This paper proposes a generalized CH (GCH) model that nests a variant of the LK model, called LM. GCH differs from CH in two ways. First, each lower level's actual frequency is exponentially weighted with α to form level-k's belief on relative proportions; α captures stereotype bias. CH assumes no stereotype bias (α=1) and LM assumes extreme bias (α=∞). Second, GCH replaces random choice with minimum aversion for level 0. Level 0s are more likely to choose strategies that never yield the minimum payoff for any of the opponent's strategies. GCH captures behaviors better than CH and LK in fifty-five n×m games from four datasets. Robustness tests using three new games further validate GCHs descriptive strength over CH and LK.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.