Bridging Level-K to Nash Equilibrium

33 Pages Posted: 18 Mar 2017 Last revised: 28 Mar 2019

See all articles by Dan Levin

Dan Levin

Ohio State University (OSU) - Economics

Luyao Zhang

East China Normal University (ECNU)

Date Written: March 25, 2019

Abstract

We propose a new solution concept, NLK, that connects Nash Equilibrium (NE) and Level-K. It allows a player in a game to believe that her opponent may be either less or as sophisticated as, she is a view with support in psychology. We apply it to data from four published papers on static, dynamic and auction games. NLK provides different predictions than those of NE and Level-K. Moreover, a simple version of it explains the experimental data better in many cases. We discuss extensions to games with more than two players and heterogeneous beliefs.

Keywords: Nash Equilibrium, Level-k, bounded rationality

JEL Classification: D01, C72, C92

Suggested Citation

Levin, Dan and Zhang, Luyao, Bridging Level-K to Nash Equilibrium (March 25, 2019). Available at SSRN: https://ssrn.com/abstract=2934696 or http://dx.doi.org/10.2139/ssrn.2934696

Dan Levin

Ohio State University (OSU) - Economics ( email )

1945 N. High Street
Columbus, OH 43210-1172
United States

Luyao Zhang (Contact Author)

East China Normal University (ECNU) ( email )

North Zhongshan Road Campus
3663 N. Zhongshan Rd.
Shanghai, 200062
China

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