Papers › Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of...
Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour
Itzhak Rasooly
In this paper, we design and implement an experiment aimed at testing the level-k model of auctions. We begin by asking which (simple) environments can best disentangle the level-k model from its leading rival, Bayes-Nash equilibrium. We find two environments that are particularly suited to this purpose: an all-pay auction with uniformly distributed values, and a first-price auction with the possibility of cancelled bids. We then implement both of these environments in a virtual laboratory in order to see which theory can best explain observed bidding behaviour. We find that, when plausibly calibrated, the level-k model substantially under-predicts the observed bids and is clearly out-performed by equilibrium. Moreover, attempting to fit the level-k model to the observed data results in implausibly high estimated levels, which in turn bear no relation to the levels inferred from a game known to trigger level-k reasoning. Finally, subjects almost never appeal to iterated reasoning when asked to explain how they bid. Overall, these findings suggest that, despite its notable success in predicting behaviour in other strategic settings, the level-k model (and its close cousin cognitive hierarchy) cannot explain behaviour in auctions.
Code
Repository list and official/mentioned flags are the archive's, frozen 2025-07-28. Reachability, where shown, is from one Syntology probe window (2026-09-16 to 2026-09-18); repositories not probed show nothing. GitHub stars are not tracked.
Code Syntology ran Syntology
Not run by Syntology. Nothing on this page verifies that the listed code works.
Results from the paper archive 2025-07-28
No leaderboard rows for this paper in the archive.
Report a problem or propose a change · a person checks every report against the paper or source before anything changes; decisions are listed on /corrections