Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5071706 | Games and Economic Behavior | 2014 | 22 Pages |
â¢We study the predictive power of level-k models in a generalized beauty contest.â¢Level-k models are successful in settings close to the standard beauty contest.â¢Their performance is significantly lower with asymmetric information.â¢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.