Breitmoser, Yves (2010): Hierarchical Reasoning versus Iterated Reasoning in pBeauty Contest Guessing Games.

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Abstract
This paper analyzes strategic choice in pbeauty contests. We first show that it is not generally a best reply to guess the expected target value (accounting for the own weight) even in games with n>2 players and that iterated best response sequences are not unique even after perfect/cautious refinement. This implies that standard formulations of ``levelk'' models are neither exactly nor uniquely rationalizable by belief systems based on iterated best response. Second, exact modeling of iterated reasoning weakens the fit considerably and reveals that equilibrium types dominate the populations. We also show that ``levels of reasoning'' cannot be measured regardless of the underlying model. Third, we consider a ``nested logit'' model where players choose their level. It dispenses with belief systems between players and is rationalized by a random utility model. Besides being internally consistent, nested logit equilibrium fits better than three variants of the levelk model in standard data sets.
Item Type:  MPRA Paper 

Original Title:  Hierarchical Reasoning versus Iterated Reasoning in pBeauty Contest Guessing Games 
Language:  English 
Keywords:  logit equilibrium, hierarchical response, levelk, beauty contest 
Subjects:  C  Mathematical and Quantitative Methods > C4  Econometric and Statistical Methods: Special Topics > C44  Operations Research ; Statistical Decision Theory C  Mathematical and Quantitative Methods > C7  Game Theory and Bargaining Theory > C72  Noncooperative Games 
Item ID:  19893 
Depositing User:  Yves Breitmoser 
Date Deposited:  13. Jan 2010 14:44 
Last Modified:  18. Feb 2013 21:42 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/19893 