Strategic Uncertainty: An Experimental Investigation

Project Information

SUExp

Grant agreement ID: 801635

DOI

10.3030/801635

Project closed

EC signature date 25 October 2018

Start date 1 November 2018

End date 30 November 2024

Funded under

• EXCELLENT SCIENCE - European Research Council (ERC)

Total cost

€ 1 357 946,00

EU contribution

€ 1 357 946,00

Coordinated by

UNIVERSITY COLLEGE LONDON
United Kingdom

Periodic Reporting for period 4 - SUExp (Strategic Uncertainty: An Experimental Investigation)

Reporting period: 2023-05-01 to 2024-11-30

Summary of the context and overall objectives of the project

Understanding how individuals or groups interact is at the core of virtually every economic and social problem. A central difficulty in studying such interactions is the fact that in practice, players face strategic uncertainty. This uncertainty – uncertainty about how others play the game – is important for determining one’s own behaviour. While there is a strong theoretical tradition geared towards the investigation of strategic uncertainty (Epistemic Game Theory), there have been few attempts to empirically investigate the role of strategic uncertainty on behaviour. This project delivers a comprehensive empirical study of strategic uncertainty.

The main goal of the project is to empirically investigate strategic uncertainty and incorporate these insights into game theoretic models. It focuses on three aspects:
(1) Sources of strategic uncertainty: where does strategic uncertainty come from and how can it be modelled?
(2) Decision making under strategic uncertainty: how do subjects behave when faced with strategic uncertainty?
(3) Behavioural models: how best to incorporate strategic uncertainty into game theoretic models?

Building on theoretical insights from game theory, epistemic game theory, and decision theory and using the methodological tools of experimental economics, this project aims to improve our understanding of how strategic uncertainty impacts behaviour and works towards incorporating these insights into game theoretic models.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

This section reviews the specific projects that have been undertaken as part of these projects. I classify these projects according to the aspects (1) - (3) described above and list them in order below. This numbering will also be used to refer to particular projects in the later sections of the report.

(1) Sources of strategic uncertainty: where does strategic uncertainty come from and how can it be modelled?
(a) Bounded Reasoning about Rationality: Evidence of Strategic Reasoning (with Amanda Friedenberg)


Project (a) demonstrates the importance of separating a player's strategic reasoning (whether they reason about others) from their beliefs about others rationality (which guides beliefs about actions of others) and develops a methodology to separately identify these two. Doing so allows us to investigate whether reasoning about rationality is the main form of strategic reasoning.


(2) Decision making under strategic uncertainty: how do subjects behave when faced with strategic uncertainty?
(a) Analogy based expectations in games (with Philippe Jehiel)
(b) Stochastic play (with Evan Calford and Yoram Halevy)
(c) "Magic Mirror on the Wall, Who is the Smartest One of All? (with Yoram Halevy and Johannes Hoelzemann)


Project (a) explores behaviour under strategic uncertainty by exploring the interaction of strategic and fundamental uncertainty in incomplete information games. We explore an explanation of behaviour based on analogy-based expectations in which players deal with strategic uncertainty by aggregating information in a boundedly rational way.

Project (b) explores behaviour under strategic uncertainty by investigating the interaction of strategic uncertainty and non-expected utility preferences. We investigate whether strategic uncertainty leads to deliberate stochastic behaviour.

Project (c) investigates whether beliefs about other’s ability matters. Specifically, whether believing others are more sophisticated than you leads to greater strategic uncertainty and whether this uncertainty is ambiguous.


(3) Behavioural models: how best to incorporate strategic uncertainty into game theoretic models?
(a) Reasoning about rationality and heuristics (with Amanda Friedenberg)
(b) From anchors to hierarchies: identifying levels of reasoning in games (with Adam Brandenburger and Amanda Friedenberg)

Project (a) expands on project (1a) to investigate the the nature of strategic reasoning. As part of project (1a) we find that data fits a model based on reasoning about heuristics, this project expands on that, building a formal model that incorporates reasoning about rationality and heuristics into an epistemic game theory model.

Project (b) explores the relationship between behavioural models of iterative reasoning (specifically, the level-k model) and epistemic game theory notions of iterative reasoning. This project is theoretical in nature and arose out of the need to better understand the two disparate methodologies of behavioural and epistemic game theory.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

All these projects aim to provide novel perspectives and important contributions to the literature. I expect that the majority of them will be published in either a top general journal in economics or a top field journal in game theory or experimental economics.

Key result from "Bounded reasoning about rationality: evidence of strategic reasoning"