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Cognitive ability and learning to play equilibrium: A level-k analysis

David Gill () and Victoria Prowse

No 641, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: In this paper we investigate how cognitive ability influences behavior, success and theevolution of play towards Nash equilibrium in repeated strategic interactions. We study behaviorin a p-beauty contest experiment and find striking differences according to cognitiveability: more cognitively able subjects choose numbers closer to equilibrium, converge morefrequently to equilibrium play and earn more even as behavior approaches the equilibriumprediction. To understand better how subjects with different cognitive abilities learn differently,we estimate a structural model of learning based on level-k reasoning. We find asystematic positive relationship between cognitive ability and levels; furthermore, the averagelevel of more cognitively able subjects responds positively to the cognitive ability of theiropponents, while the average level of less cognitively able subjects does not respond at all.Our results suggest that, in strategic environments, higher cognitive ability translates intobetter analytic reasoning and a better ‘theory of mind

Keywords: Cognitive ability; bounded rationality; level-k; convergence; learning non-equilibrium behavior; beauty contest; repeated games; structural modeling; theory of mind; intelligence; Raven test (search for similar items in EconPapers)
JEL-codes: C73 C92 D83 (search for similar items in EconPapers)
Date: 2013-01-25
New Economics Papers: this item is included in nep-evo, nep-exp, nep-gth, nep-hpe and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Cognitive ability and learning to play equilibrium: A level-k analysis (2012) Downloads
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