Cost of Reasoning and Strategic Sophistication

• Main Author: Wanqun Zhao
• Format: Article
• Language: English
• Published: MDPI AG 2020-09-01
• Series: Games
• Subjects: level-<i>k</i> reasoning; guessing game; cognitive load; endogenous depth of reasoning; strategic thinking
• Online Access: https://www.mdpi.com/2073-4336/11/3/40

I designed an experiment to study the persistence of the prevailing levels of reasoning across games. Instead of directly comparing the <i>k</i>-level(s) of reasoning for each game, I used cognitive load to manipulate the strategic environment by imposing variations on the subject’s cost of reasoning and their first- and second-order beliefs. Subjects have systematic changes in <i>k</i>-level(s) of reasoning across games. That finding suggests that subjects are responsive to changes in the strategic environment. Changes in <i>k</i>-level(s) of reasoning are mostly consistent with the endogenous depth of reasoning model when subjects are more cognitively capable or facing less cognitively capable opponents. Subjects have cognitive bounds, but often choose a lower-type action due to their beliefs about their opponents. Finally, cognitive ability plays a significant role in subjects making strategic adjustments when facing different strategic environments.