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

Itzhak Rasooly ()
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Itzhak Rasooly: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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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: Auction; Behavioural game theory; Experimental design; Level-k models (search for similar items in EconPapers)
Date: 2023-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04328602v1
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