Next: Monday 13th February

Rational Expectations and Depth of Reasoning

Presented by: Professor Peter Moffatt

Ferguson Lecture Theatre, Bishop's Stortford College.  CM23 2PJ.

Rational Expectations and Depth of Reasoning 

Strategic interaction is very important in many areas of human (and non-human) behaviour. Economists are particularly interested in the type of strategic interaction that arises in financial markets, where there are large numbers of agents, whose success in decision-making depends crucially on the correctness of their beliefs regarding the strategies adopted by other agents. The “standard guessing game”, sometimes called the “beauty contest game”, provides a very useful means of observing strategic interactions in a controlled setting. It can be played with any number of players (two or more).

The most popular framework for the analysis of data from such an experiment is the “level-k” model. This model assumes the co-existence of agents with different “levels of reasoning”. Level-0 agents are assumed to choose their actions randomly; Level-1 gents are assumed to believe that all other agents are Level-0, and to best-respond  to this belief; Level-2 agents assume all others are Level-1; and so on.

The limit of this process is the fully rational Level agent whose behaviour corresponds to the Nash-equilbrium prediction. 

Using Econometric methods, we analyse data from a Guessing Game experiment administered by a newspaper on its readership. The key result is that the most advanced reasoners tend to over-estimate the proportion of the population who are of similar mind. This is interpreted as a manifestation of the Dunning-Kruger effect.

Professor Peter Moffatt

Peter G Moffatt is Professor of Econometrics at the University of East Anglia. His principle research interest is Experimetrics (the Econometric Analysis of data from Economic Experiments) and he is author of the textbook Experimetrics (Palgrave Macmillan, 2015). He is also the author of many journal articles in this field, and also in other fields, including the modelling of household debt, the modelling of the UK sex industry, and the theory of the consumer.


The Ferguson Building, Bishop's Stortford College. CM23 2PJ.
Doors open at 6:45pm for refreshments and a 7:15pm start
The hall is at the front of the school near the road adjacent to the car park.


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 Upcoming dates:

[ Events always planned for the Second Monday of each month - Except August]







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