Cost of Reasoning and Strategic Sophistication

Wanqun Zhao
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Wanqun Zhao: Rady School of Management, University of California, San Diego, CA 92093, USA

Games, 2020, vol. 11, issue 3, 1-27

Abstract: I designed an experiment to study the persistence of the prevailing levels of reasoning across games. Instead of directly comparing the k -level(s) of reasoning for each game, I used cognitive load to manipulate the strategic environment by imposing variations on the subject’s cost of reasoning and their first- and second-order beliefs. Subjects have systematic changes in k -level(s) of reasoning across games. That finding suggests that subjects are responsive to changes in the strategic environment. Changes in k -level(s) of reasoning are mostly consistent with the endogenous depth of reasoning model when subjects are more cognitively capable or facing less cognitively capable opponents. Subjects have cognitive bounds, but often choose a lower-type action due to their beliefs about their opponents. Finally, cognitive ability plays a significant role in subjects making strategic adjustments when facing different strategic environments.

Keywords: level- k reasoning; guessing game; cognitive load; endogenous depth of reasoning; strategic thinking (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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