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Higher-level reasoning and the emergence of complex game dynamics

31 October 2012
Ex Boccherini - Piazza S. Ponziano 6 (Conference Room )
What is the source of complex dynamics in financial markets? Do markets dutifully track the course of untamed exogenous processes, or does complexity emerge endogenously from strategic interactions? This work, coming from perspective of cognitive science, supports recent claims that complex dynamics are endogenous to real-world social and economic institutions. Economists have claimed that the higher-level reasoning processes behind strategic game decisions will prevent emergent group dynamics by stabilizing or speeding convergence to the Nash equilibrium of various games. I present a simple laboratory experiment challenging this claim, one that shows that level-k thinking --- representing the iterates of "what you think I think you think" --- may be driving rather than preventing this mutually beneficial emergent collective effect.
Frey, Seth - Indiana University, Bloomington - Bloomington