Job Market Seminar

Abstract: Sequential equilibrium is the conventional approach for analyzing multi-stage games of incomplete information, relying on the requirement of mutual consistency---an empirically implausible assumption. To address this issue, I theoretically and experimentally explore the dynamic cognitive hierarchy (DCH) solution proposed by Lin and Palfrey (2022), as an alternative solution concept that relaxes mutual consistency. One property of DCH is the solution can vary between two different games sharing the same reduced normal form. To test this prediction, I conduct a laboratory experiment using two strategically equivalent versions of the dirty-faces game. The payoff parameters are selected to maximize the expected difference in behavior between the versions as predicted by DCH. The experimental results indicate significant differences in behavior between the two versions, aligning with DCH. This suggests that implementing a dynamic game experiment in reduced normal form (using the "strategy method") could lead to severe distortion in behavior.