Bridging Level-K to Nash Equilibrium
Abstract
We introduce NLK, a model that connects the Nash equilibrium (NE) and Level-K. It allows a player in a game to believe that her opponent may be either less or as sophisticated as, she is, a view supported in psychology. We apply NLK to data from five published papers on static, dynamic, and auction games. NLK provides different predictions than those of the NE and Level-K; moreover, a simple version of NLK explains the experimental data better in many cases, with the same or lower number of parameters. We discuss extensions to games with more than two players and heterogeneous beliefs.
Keywords
Cite
@article{arxiv.2202.12292,
title = {Bridging Level-K to Nash Equilibrium},
author = {Dan Levin and Luyao Zhang},
journal= {arXiv preprint arXiv:2202.12292},
year = {2025}
}
Comments
Keywords: Nash equilibrium, Level-K, Bayesian Nash Equilibrium, Sub-game Perfect Bayesian Nash Equilibrium, Bounded rationality, psychology, behavioral economics, false consensus effects, centipede Game, the 11-20 money request game, Common Value Auction, experienced and inexperienced bidders, learning in games, equilibrium solution concepts, strategic thinking, chess players