Higher-Order Learning

55 Pages Posted: 23 Dec 2018 Last revised: 13 Jul 2019

See all articles by Piotr Evdokimov

Piotr Evdokimov

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Investigacion Economica

Umberto Garfagnini

University of Surrey - School of Economics

Date Written: July 11, 2019

Abstract

We use a novel experiment to study how players form and update their beliefs about the beliefs of others. The experiment is designed so that players' choices correspond to higher-order expectations about a common state of the world (e.g., economic fundamentals). We find that higher-order expectations reflect a certain degree of sophistication. In particular, they respond to information about how lower-order expectations are formed and are updated more slowly when a player faces uncertainty about others' information. However, we also identify a novel behavioral bias: Higher-order expectations diverge over time, even as more information becomes available. This finding points to a failure of theory of mind, i.e., a failure of subjects to correctly predict the way in which others process information.

Keywords: Higher-order expectations, learning, theory of mind

JEL Classification: C90, D83, D89

Suggested Citation

Evdokimov, Piotr and Garfagnini, Umberto, Higher-Order Learning (July 11, 2019). Available at SSRN: https://ssrn.com/abstract=3296226 or http://dx.doi.org/10.2139/ssrn.3296226

Piotr Evdokimov

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Investigacion Economica ( email )

Av. Camino a Santa Teresa #930
Col. Heroes de Padierna
Mexico City, D.F. 10370
Mexico

Umberto Garfagnini (Contact Author)

University of Surrey - School of Economics ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

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