Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour

Itzhak Rasooly

PSE Working Papers from HAL

Abstract: In this paper, we design and implement an experiment aimed at testing the level-k model of auctions. We begin by identifying (simple) environments that optimally disentangle the predictions of the level-k model from the natural benchmark of Bayes-Nash equilibrium. We then implement these environments within a virtual laboratory in order to see which theory can best explain observed bidding behaviour. Overall, our findings suggest that, despite its notable success in predicting behaviour in other strategic settings, the level-k model (and its close cousin, cognitive hierarchy) cannot explain behaviour in auctions.

Keywords: Behavioural game theory; Experimental design; Level-k models; Auction (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-des, nep-exp and nep-gth
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04328602v1
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Working Paper: Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour (2023)
Working Paper: Going...going...wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour (2022)
Working Paper: Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour (2021)
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