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A Cognitive Hierarchy Theory of One-shot Games and Experimental Analysis

47 Pages Posted: 3 Oct 2003  

Colin Camerer

California Institute of Technology - Division of the Humanities and Social Sciences

Teck Ho

University of California, Berkeley - Haas School of Business

Juin-Kuan Chong

National University of Singapore (NUS) - NUS Business School

Date Written: September 8, 2003

Abstract

In game-theoretic equilibrium, players' beliefs about choices by others are statistically correct. This "mutual consistency" assumption often predicts poorly in one-shot games. We develop an alternative "cognitive hierarchy" (CH) theory. In the CH model players who are not thinking strategically (0 steps) randomize. Players doing k steps of thinking predict accurately what lower-level players (steps 0 to k − 1) do, and best-respond given their beliefs. The model can explain why equilibration is so limited in some games (such as p-beauty contest), and surprisingly accurate in other games (such as business entry). The average number of thinking steps is about 1.5 across many games.

Suggested Citation

Camerer, Colin and Ho, Teck and Chong, Juin-Kuan, A Cognitive Hierarchy Theory of One-shot Games and Experimental Analysis (September 8, 2003). Available at SSRN: https://ssrn.com/abstract=411061 or http://dx.doi.org/10.2139/ssrn.411061

Colin Camerer (Contact Author)

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States
626-395-4054 (Phone)
626-432-1726 (Fax)

Teck Ho

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Juin-Kuan Chong

National University of Singapore (NUS) - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

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