Unraveling in guessing games: An experimental study (by Rosemarie Nagel)

Nagel’s level- k reasoning model provides an important framework for thinking about initial responses to novel situations. Straightforward applications and extensions of the model are discussed, including the applications to different subject populations, implementation in field experiments, and applications to better understand bidding in auctions. A number of papers are reviewed, explicitly accounting for the endogeneity of levels of reasoning due to incentives and beliefs about other agents’ depth of reasoning. Experiments based on this endogeneity, the relation between response times and depth of reasoning, and the neurological underpinnings of levels of reasoning are reviewed as well.