The Dirty Faces Game Revisited

Ralph-C Bayer () and Mickey Chan
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Mickey Chan: School of Economics, University of Adelaide

No 2007-01, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: Weber (2001) uses the Dirty Faces Game to examine the depth of iterated rationality. Weber does not consider equilibria that contain weakly dominated actions. So he implicitly assumes that it is common knowledge that no one ever uses weakly dominated actions. We show that allowing for equilibria in weakly dominated strategies greatly extents the set of potentially rational actions. The original game therefore lacks discriminatory power, as many actions categorised as irrational by Weber can actually be part of an equilibrium strategy. We slightly modify the payoff structure and establish strict dominance, which leads to a unique equilibrium. The resulting dominance-solvable game is implemented in an experiment. We find that subjects are either able to iterate right to the equilibrium or fail to do so when two or more steps of iteration are necessary. Virtually all subjects were able to do one step of iteration. Further, we find evidence that the lack of confidence in other players' iterative abilities induces deviations from equilibrium play.

Keywords: game theory; iterative reasoning; experimental economics (search for similar items in EconPapers)
JEL-codes: C72 C91 C92 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2007
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: The Dirty Faces Game Revisited (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2007-01

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