Three steps ahead

Yuval Heller

MPRA Paper from University Library of Munich, Germany

Abstract: Experimental evidence suggest that people only use 1-3 iterations of strategic reasoning, and that some people systematically use less iterations than others. In this paper, we present a novel evolutionary foundation for these stylized facts. In our model, agents interact in finitely repeated Prisoner's Dilemma, and each agent is characterized by the number of steps he thinks ahead. When two agents interact, each of them has an independent probability to observe the opponent's type. We show that if this probability is not too close to 0 or 1, then the evolutionary process admits a unique stable outcome, in which the population includes a mixture of “naive” agents who think 1 step ahead, and “sophisticated” agents who think 2-3 steps ahead.

Keywords: Indirect evolution; cognitive hierarchy; bounded forward-looking; Prisoner's Dilemma; Cooperation (search for similar items in EconPapers)
JEL-codes: C73 D03 (search for similar items in EconPapers)
Date: 2012-06-13
New Economics Papers: this item is included in nep-evo, nep-exp, nep-hpe and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://mpra.ub.uni-muenchen.de/40714/1/MPRA_paper_40714.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/40715/1/MPRA_paper_40715.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/40984/1/MPRA_paper_40984.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/43695/1/MPRA_paper_43695.pdf revised version (application/pdf)

Related works:
Journal Article: Three steps ahead (2015)
Working Paper: Three steps ahead (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:40714

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