Munich Personal RePEc Archive

Beliefs and (In)Stability in Normal-Form Games

Hyndman, Kyle and Terracol, Antoine and Vaksmann, Jonathan (2013): Beliefs and (In)Stability in Normal-Form Games.

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Abstract

In this paper, we use experimental data to study players' stability in normal-form games where subjects have to report beliefs and to choose actions. Subjects saw each of 12 games four times in a regular or isomorphic form spread over two days without feedback. We document a high degree of stability within the same (strategically equivalent) game, although time and changes in the presentation of the game do lead to less stability. To look at stability across different games, we adopt the level-k theory, and show that stability of both beliefs and actions is significantly lower. Finally, we estimate a structural model in which players either apply a consistent level of reasoning across strategically different games, or reasoning levels change from game to game. Our results show that approximately 30% of subjects apply a consistent level of reasoning across the 12 games, but that they assign a low level of sophistication to their opponent. The remaining 70% apply different levels of reasoning to different games.

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