| A COGNITIVE HIERARCHY MODEL OF GAMES 1 (2008) | |||||||||||||||
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| Players in a game are “in equilibrium ” if they are rational, and accurately predict other players ’ strategies. In many experiments, however, players are not in equilibrium. An alternative is “cognitive hierarchy ” (CH) theory, where each player assumes his strategy is the most sophisticated. The CH model has inductively-defined strategic categories: Step 0 players randomize; and step k thinkers best-respond, assuming other players are distributed over step 0 through step k − 1. This model fits empirical data, and explains why equilibrium theory predicts behavior well in some games and poorly in others. An average of 1.5 steps fits data from many games. | |||||||||||||||
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