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

47 Pages Posted: 3 Oct 2003

See all articles by Colin Camerer

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 F. 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 F. Camerer (Contact Author)

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

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Teck Ho

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

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Juin-Kuan Chong

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

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