This is a collaborative proposal with Dr. Camerer (SBR-9511001). The PIs propose to study iterated rationality in the context of economic game theory. Iterated rationality refers to the belief that others are rational, that others believe that you are rational, that you believe that others believe that you are rational, etc. Iterated rationality is a central assumption of game-theoretic analyses that have been applied to a large number of phenomena in economics, psychology, and other social sciences. Since the empirical basis for this assumption is weak, the PIs plan to examine it in several ways. First, they will use a numbers game in which the estimate of a winning number by a contestant reveals to what extent that contestant believes in iterated rationality. Second, they will use variations of the numbers game in order to determine which changes in the procedure foster more rational choices. Such procedural changes will provide clues as to subjects assumptions about the rationality of their opponents. Third, the PIs will examine participants with various characteristics, such as group homogeneity or experience with the numbers game, in order to determine what factors influence participants rationality. Finally the PIs will examine whether what a participant learns about rationality in one game transfers to a different game.
