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

Vincent P. Crawford (Corresponding Author), Miguel A. Costa-Gomes, Nagore Iriberri

Research output: Contribution to journalArticle

145 Citations (Scopus)

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)
Original languageEnglish
Pages (from-to)5-62
Number of pages57
JournalJournal of Economic Literature
Volume51
Issue number1
DOIs
Publication statusPublished - Mar 2013

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