What Model Best Describes Initial Choices in a Cournot Duopoly Experiment?

Abstract

This paper tests empirically four models of bounded rationality using data from first responses in a Cournot duopoly experiment. Specifically, the models considered are Level-k, Quantal Response Equilibrium, Noisy Introspection and Logit Cognitive Hierarchy. It is found that the Level-k model (with proportions of Level-0, Level-1 and Level-8 given by 68.5%, 13.2% and 18.3% respectively) provides the best fit in terms of Log-Likelihood and BIC. Moreover, the robustness of our findings is corroborated analyzing subsets of the original data.