Research Seminar MicroeconomicsLevel-k reasoning in tournamentsTobias Brünner (U Lincoln)
11 May 2017
Tobias Brünner (U Lincoln) 17:15 - 18:45, Room 0029 (VMP 5)
Abstract
Most experimental studies of tournaments find persistent differences between the actual choices of the participants of the tournament and equilibrium play. In this paper we use a structural model of nonequilibrium beliefs to explain these differences. In particular, we show that level-k reasoning leads to large heterogeneity in effort provision across otherwise identical workers. When workers differ in their abilities, level-k reasoning predicts that high ability workers exert very high effort, whereas low ability workers provide no effort at all. Moreover, we show that level-k reasoning is better than loss aversion to explain this bifurcation in workaholics and dropouts.