Rosemarie Nagel, Ph.D. (ICREA-UPF-BSE)
ICREA at UPF
*Note: Date of event postponed to November 16, 2021*
“Level-k and Efficiency Heuristics in a Behavioral Taxonomy of 2×2 Games and Questions about the Brain”
The outcomes from strategic decision-making (such as market entry or technology adoption) depend on structural features of situations and types of players involved. Even in identical situations, players differ in their perceptions of situations, goals, and strategic sophistication. Informed by behavioral and experimental economics, we present two heuristic player types under strategic uncertainty in new situations, exemplified within the simplest class of games, two players–two actions (2×2) games, e.g., Prisoner’s dilemma or Entry games. One type anticipates others’ behavior and (iteratively) best replies to his or her beliefs (called iterated reasoning heuristics or level-k). The other type is guided by goals of own payoff maximum, equality, or social optimum, ignoring procedural details such as others’ reasoning, subsumed under efficiency heuristics. New to the literature, to understand the implications of the structure of games and player types, we develop a behavioral taxonomy of 2×2 games. Given the fundamental differences of the two types, the large set of 2×2 games collapses to four distinct classes for efficiency types and five, albeit different ones, for iterated reasoning, and 14 in a joint system. We critically discuss some results from the experimental economics and neuro-economic literature of eye-tracking and fMRI data and propose new experiments in the light of our behavioral player types and structure of 2×2-games. The behavioral economics part of the talk is based on the paper “Iterated Reasoning and Efficiency Heuristics, and a Behavioral Taxonomy of 2×2 Games” by Rosemarie Nagel, Jens Schmidt, and Davide Marchiori resubmitted to Strategy Science.
Rosemarie Nagel is an ICREA Research Professor working in the areas of experimental, behavioral, and neuroeconomics at the Universitat Pompeu Fabra and the Barcelona Graduate School of Economics and is the Director of BESlab-UPF. Nagel gained her Dr. rer. pol. in Economics in 1994 from the University of Bonn, under Reinhard Selten. In 1994-95 she was a postdoctoral fellow with Alvin Roth, at the University Pittsburgh. Her research builds bridges between theory and human behavior with models and designs using laboratory, field, and neuroscientific tools and data. Nagel originated studying bounded rationality via a steplevel reasoning model (also called level-k), first developed in Keynesian Beauty Contest experiments. Her approaches have been applied in microeconomics, macroeconomics and finance, neuroeconomics, management and business research, psychology, philosophy, and computer science. Her publications are in leading journals in economics, business, psychology, natural sciences. Journals include American Economic Review, Econometrica, Proceedings of the National Academy of Sciences (PNAS), Nature Human Behavior, Strategic Management Journal. Popular press coverage includes Financial Times and Spektrum der Wissenschaft.