Bounded reasoning about rationality can have important implications for behavior. These bounds are typically viewed as an artifact of limits in the ability to engage in interactive rea- soning, i.e., to reason through “I think, you think, I think, etc ...” However, in principle, these bounds need not be determined by limits in ability. This paper develops a novel identification strategy to show that bounded reasoning about rationality is not determined by limitations in ability. It goes on to show that non-degenerate beliefs about rationality can be an important determinant of behavior. This has important implications for out-of-sample predictions.
Amanda Friedenberg is an Associate Professor of Economics at the W.P. Carey School of Business (Arizona State University). Prior to arriving at ASU, she was an Assistant Professor of Economics at the Olin Business School (Washington University in St. Louis). Her research focuses on game theory and political economy.
Neuroeconomics Colloquium Series by the NYU-ECNU Institute of Brain and Cognitive Science at NYU Shanghai