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Type: Conference paper
Title: The dirty faces game revisited
Author: Bayer, R.
Chan, C.
Citation: Proceedings of ESAM07, 2007 / Alicia Rambaldi (ed./s), pp.1-26
Publisher: University of Queensland
Publisher Place: Australia
Issue Date: 2007
Conference Name: Australasian Meeting of the Econometric Society (2007 : Brisbane, Australia)
Editor: Alicia Rambaldi
Statement of
Ralph-C. Bayer and Mickey Chan
Abstract: Weber (2001) uses the Dirty Faces Game to examine the depth of iterated rationality. Weber does not consider equilibria that contain weakly dominated actions. So he implicitly assumes that it is common knowledge that no one ever uses weakly dominated actions. We show that allowing for equilibria in weakly dominated strategies greatly extents the set of po- tentially rational actions. The original game therefore lacks discriminatory power, as many actions categorised as irrational by Weber can actually be part of an equilibrium strategy. We slightly modify the payoff structure and establish strict dominance, which leads to a unique equilibrium. The resulting dominance-solvable game is implemented in an experiment. We find that subjects are either able to iterate right to the equilibrium or fail to do so when two or more steps of iteration are necessary. Virtually all sub- jects were able to do one step of iteration. Further, we find evidence that the lack of confidence in other players' iterative abilities induces deviations from equilibrium play.
Keywords: D83
Iterative reasoning
strategic uncertainty
common knowledge of rationality
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Appears in Collections:Aurora harvest
Economics publications

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