Erik Wengström

Professor, Studierektor forskarutbildning, Nationalekonomiska institutionen

Price competition, level-k theory and communication

Författare

Erik Wengström

Summary, in English

This paper analyzes communication in a price competition game using the level-$k$ theory of bounded rationality. The level-k analysis predicts prices to be higher with communication than without. Our experimental evidence lends support to the view that communication affects subjects in a way that is compatible with the level-k model, indicating that people lie in order to fool other players that they believe do less thinking. Moreover, the results indicate that the predictive power of the level-k model does crucially depend on the possibility for high level players to form homogenous beliefs about the behavior of the level-0 players

Publiceringsår

2008

Språk

Engelska

Sidor

1-15

Publikation/Tidskrift/Serie

Economics Bulletin

Volym

Issue

Fulltext