Level-k reasoning in a generalized beauty contest

•We study the predictive power of level-k models in a generalized beauty contest.•Level-k models are successful in settings close to the standard beauty contest.•Their performance is significantly lower with asymmetric information.•Their performance is significantly lower if coordination motive is weak.

We study how the predictive power of level-k models changes as we perturb the classical beauty contest setting along two dimensions: the strength of the coordination motive and the information symmetry. We use a variation of the Morris and Shin (2002) model as the unified framework for our study, and find that the predictive power of level-k models varies considerably along these two dimensions. Level-k models are successful in predicting subject behavior in settings with symmetric information and a strong coordination motive. Their predictive power weakens significantly when either private information is introduced or the importance of the coordination motive is decreased.