Level-K Reasoning in a Generalized Beauty Contest
University of North Carolina at Charlotte - The Belk College of Business Administration - Department of Economics
University of Toronto - Department of Economics
University of North Carolina (UNC) at Charlotte
August 31, 2011
We study how the predictive power of level-k models changes as we perturb the classical beauty contest setting along two dimensions: the strength of the coordination motive and the information symmetry. We use a variation of the Morris and Shin (2002) model as the uniﬁed framework for our study, and ﬁnd that the predictive power of level-k models varies considerably along these two dimensions. Level-k models are successful in predicting subject behavior in settings with symmetric information and a strong coordination motive. However, the predictive power of level-k models is signiﬁcantly weakened when private information is introduced or the importance of the coordination motive is decreased.
Number of Pages in PDF File: 30
Date posted: June 22, 2012 ; Last revised: March 19, 2013
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