Structural Models of Nonequilibrium Strategic Thinking: Theory, Evidence, and Applications

Vincent Crawford, Miguel Costa-Gomes and Nagore Iriberri

Journal of Economic Literature, 2013, vol. 51, issue 1, 5-62

Abstract: Most applications of game theory assume equilibrium, justified by presuming either that learning will have converged to one, or that equilibrium approximates people's strategic thinking even when a learning justification is implausible. Yet several recent experimental and empirical studies suggest that people's initial responses to games often deviate systematically from equilibrium, and that structural nonequilibrium "level-k" or "cognitive hierarchy" models often out-predict equilibrium. Even when learning is possible and converges to equilibrium, such models allow better predictions of history-dependent limiting outcomes. This paper surveys recent theory and evidence on strategic thinking and illustrates the applications of level-k models in economics. (JEL C70, D03, D82, D83)

JEL-codes: C70 D03 D82 D83 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/jel.51.1.5
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Citations: View citations in EconPapers (286)

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