Project Management

Depth Of Reasoning And Higher Order Beliefs

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Executive Summary

As demonstrated by the email game of Rubinstein (1989), the predictions of the standard equilibrium models of game theory are sensitive to assumptions about the fine details of the higher order beliefs. This paper shows that models of bounded depth of reasoning based on level-k thinking or cognitive hierarchy make predictions that are independent of the tail assumptions on the higher order beliefs. In addition to this finding, the tools developed in this paper offer a new direction for the analysis of models of bounded depth of reasoning and their applications to various economic settings.

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