Level-K Reasoning in a Generalized Beauty Contest
30 Pages Posted: 22 Jun 2012 Last revised: 25 May 2016
Date Written: 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.
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