Level-K Reasoning in a Generalized Beauty Contest

30 Pages Posted: 22 Jun 2012 Last revised: 25 May 2016

Dmitry Shapiro

University of North Carolina at Charlotte - The Belk College of Business Administration - Department of Economics

Xianwen Shi

University of Toronto - Department of Economics

Artie Zillante

University of North Carolina (UNC) at Charlotte

Date Written: August 31, 2011

Abstract

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.

Suggested Citation

Shapiro, Dmitry and Shi, Xianwen and Zillante, Artie, Level-K Reasoning in a Generalized Beauty Contest (August 31, 2011). Available at SSRN: https://ssrn.com/abstract=2089522 or http://dx.doi.org/10.2139/ssrn.2089522

Dmitry Shapiro (Contact Author)

University of North Carolina at Charlotte - The Belk College of Business Administration - Department of Economics ( email )

Charlotte, NC 28223
United States

Xianwen Shi

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

Artie Zillante

University of North Carolina (UNC) at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

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