Measuring Higher-Order Rationality with Belief Control

Author:

Wei James Chen, Meng-Jhang Fong, Po-Hsuan Lin

Keyword:

Economics, General Economics, General Economics (econ.GN)

journal:

date:

2023-09-13 16:00:00

Abstract

Determining an individual's strategic reasoning capability based solely on choice data is a complex task. This complexity arises because sophisticated players might have non-equilibrium beliefs about others, leading to non-equilibrium actions. In our study, we pair human participants with computer players known to be fully rational. This use of robot players allows us to disentangle limited reasoning capacity from belief formation and social biases. Our results show that, when paired with robots, subjects consistently demonstrate higher levels of rationality and maintain stable rationality levels across different games compared to when paired with humans. This suggests that strategic reasoning might indeed be a consistent trait in individuals. Furthermore, the identified rationality limits could serve as a measure for evaluating an individual's strategic capacity when their beliefs about others are adequately controlled.

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