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

David Gill () and Victoria Prowse

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we investigate how cognitive ability influences behavior, success and the evolution of play towards Nash equilibrium in repeated strategic interactions. We study behavior in a p-beauty contest experiment and find striking differences according to cognitive ability: more cognitively able subjects choose numbers closer to equilibrium, converge more frequently to equilibrium play and earn more even as behavior approaches the equilibrium prediction. 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 a systematic positive relationship between cognitive ability and levels; furthermore, the average level of more cognitively able subjects responds positively to the cognitive ability of their opponents, 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 into better analytic reasoning and a better ‘theory of mind’

Keywords: Cognitive ability; Bounded rationality; Learning; Convergence; Level-k; Nonequilibrium behavior; Beauty contest; Repeated games; Structural modeling; Theory of mind; Intelligence; Raven test (search for similar items in EconPapers)
JEL-codes: C73 C91 D83 (search for similar items in EconPapers)
Date: 2012-04-23, Revised 2012-04-23
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp, nep-gth, nep-hpe, nep-mic and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Working Paper: Cognitive ability and learning to play equilibrium: A level-k analysis (2013) Downloads
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