2022/08/23 by Po-Hsuan Lin, Lin, Po-Hsuan · 1 citation
Decision Sciences · Social Sciences · #Decision-Making and Behavioral Economics #Experimental Behavioral Economics Studies #FOS: Economics and business #Game Theory and Applications #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2208.11190
openalex publication_date 2022/08/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Sequential equilibrium is the conventional approach for analyzing multi-stage games of incomplete information. It relies on mutual consistency of beliefs. To relax mutual consistency, I theoretically and experimentally explore the dynamic cognitive hierarchy (DCH) solution. One property of DCH is that the solution can vary between two different games sharing the same reduced normal form, i.e., violation of invariance under strategic equivalence. I test this prediction in a laboratory experiment using two strategically equivalent versions of the dirty-faces game. The game parameters are calibrated to maximize the expected difference in behavior between the two versions, as predicted by DCH. The experimental results indicate significant differences in behavior between the two versions, and more importantly, the observed differences align with DCH. This suggests that implementing a dynamic game experiment in reduced normal form (using the "strategy method") could lead to distortions in behavior.