Abstract: In the leading model of bounded rationality in games, each player best-responds to their belief that the other players reason to some finite level. This paper investigates a novel behavior that could reveal if the player’s belief lies outside the iterative reasoning model. This encompasses a situation where a player believes that their opponent can reason to a higher level than they do. We propose an identification strategy for such behavior, and evaluate it experimentally.
Keywords: Bounded rationality, higher-order rationality, level-k, cognitive-hierarchy, game theory, equilibrium, rationalizability, preference elicitation, lab experiment
JEL Classification: C72, C92, D91