Download This PaperDo People Minimize Regret in Strategic Situations? A Level-k Comparison
51 Pages Posted: 5 May 2020
Date Written: April 1, 2020
Abstract
Regret minimization and level-k reasoning have been proposed as alternative models for rationalizing non-equilibrium behavior in games. We provide a theoretical and experimental analysis of the relationship between these two models, a relationship that has been neglected by economists. Both theories predict the same behavior in a surprisingly large number of experimentally tested games. We identify conditions under which this happens and use them to design a series of games to separate minimax regret from level-1. The experimental test of these games and data from Costa-Gomes and Crawford (2006) reveal that no one systematically minimizes regret, casting doubt on minimax regret as a relevant explanation for behavior in strategic situations.
Keywords: Regret Minimization, Level-K Model, Experiments, Initial Responses, Mixture-of-Types Models
JEL Classification: C72, C92
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