Abstract: We study how the predictive power of level-k models changes as we perturb the classical beauty contest setting along two dimensions: the strength of the coordination motive and the information symmetry. We use the Morris and Shin (2002) model as the unified framework for our study, and find that the predictive power of level-k models varies considerably along these two dimensions. Level-k models are successful in predicting subject behavior in settings with symmetric information and a strong coordination motive. When we introduce private
information or weaken the strength of the coordination motive, the predictive power of level-k models decreases significantly.
Keywords: level-k models, beauty contest, coordination
JEL Classification: C72; C92; D83