Higher-Order Rationality and Introspection

Abstract

Is there any difference in how I believe my opponents reason about my rationality as opposed to the rationality of others? To address this question, we introduce introspection into the ring games (Kneeland, 2015). In these games, one player makes multiple decisions, forcing her to reason about how others reason about her rationality. We assess experimentally whether the presence of introspection modifies the orders of revealed-rationality compared to ring games without introspection. Although epistemic game theory does not distinguish between these scenarios, our findings reveal that introspection indeed has an effect on subjects’ revealed orders of rationality. Specifically, introspection increases the order of revealed-rationality among less rational players in classic ring games, while it decreases the order of revealed-rationality among more rational players.

Keywords: Rationality, higher-order rationality, introspection, ring games

JEL Classification: C72, C91, C70, D01, D90