Price competition, level-k theory and communication
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This paper analyzes communication in a price competition game using the level-$k$ theory of bounded rationality. The level-k analysis predicts prices to be higher with communication than without. Our experimental evidence lends support to the view that communication affects subjects in a way that is compatible with the level-k model, indicating that people lie in order to fool other players that they believe do less thinking. Moreover, the results indicate that the predictive power of the level-k model does crucially depend on the possibility for high level players to form homogenous beliefs about the behavior of the level-0 players.
Originalsprog | Engelsk |
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Tidsskrift | Economics Bulletin |
Vol/bind | 3 |
Udgave nummer | 66 |
Antal sider | 15 |
ISSN | 1545-2921 |
Status | Udgivet - 2008 |
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