The dirty faces game revisited
Date
2007
Authors
Bayer, R.
Chan, C.
Editors
Alicia Rambaldi,
Advisors
Journal Title
Journal ISSN
Volume Title
Type:
Conference paper
Citation
Proceedings of ESAM07, 2007 / Alicia Rambaldi, (ed./s), pp.1-26
Statement of Responsibility
Ralph-C. Bayer and Mickey Chan
Conference Name
Australasian Meeting of the Econometric Society (2007 : Brisbane, Australia)
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.