Rationality and Observed Behavior

ECONOMICS & DECISION SCIENCES

Speaker : Pedro REY (ESADE)

HEC Campus - Building T - Room T020

Rationality and Observed Behavior 

(joint with F. Cerigioni, F. Germano and P. Zuazo-Garin)

Abstract : 

Identifying individual levels of rationality is crucial to modeling strategic interaction and understanding behavior in games. Nevertheless, there is no consensus neither on the best identification methodology nor on the empirical distribution of higher order rationality levels in the population. We define the simplest class of games that both minimizes the probability of Type I misidentification errors and captures fundamental characteristics of all strategic settings. We experimentally test the validity of the distribution of orders of rationality obtained in this class of games by comparing it with the ones found by previous standard methodologies. We _nd that our class identifies a distribution exhibiting the highest correlation both with the distribution of the most frequent rationality level a subject has been classified across all methodologies, and with an independent measure of cognitive ability. Finally, there is no evidence in our sample of within subject consistency of identified rationality levels across games.